In the event that your vehicle is Gap Insurance or wrecked, the last thing you want to hear is that you have a greater amount of money owed on the loan than the value of the vehicle.
What you owe on a car loan or lease will not be paid by your auto insurance company in the event of a complete loss settlement if you have collision or comprehensive coverage. Instead, your insurance company will pay for the value of your vehicle. However, gap insurance might assist you in closing the gap between the amount you owe on your vehicle and the value of the vehicle.
Heart of The Article
The Gap Insurance: What Is It?
Those drivers whose car loan sum is more than what their vehicle is worth in the event that it is wrecked might benefit from gap insurance, which is a kind of car insurance coverage that is optional and helps bridge the financial difference.
What is the process behind gap insurance?
In the event that your car is completely destroyed in a vehicle accident that is covered by collision or comprehensive insurance, the maximum amount of money that your insurer will pay out to you is equal to the worth of the vehicle just before the accident. The difference between the amount you owe and the value of your car after it has been stolen or wrecked is covered by gap insurance, which is also commonly referred to as loan or lease coverage.
However, in order to get gap coverage, you are required to have both collision and comprehensive insurance.
An example of a typical claim for gap insurance is as follows:
In the event that your car is stolen or destroyed in an accident that is covered by your auto insurance policy, you will file a claim on either the collision or comprehensive insurance section of your policy, depending on which coverage is applicable. You may expect your lender to get the actual cash value (ACV) of your vehicle from your insurance. The difference between the amount you owe on your loan and the ACV may be covered by gap insurance if you have it.
In the event that you do not have gap insurance and the amount of the loan or lease that is still owing is more than the value of your vehicle, you will be responsible for paying off the remaining balance of the loan directly. In the scenario that we presented earlier, gap insurance would pay the remaining $3,000 that is owing to the lender, which would eliminate the need for you to personally come up with the funds to pay that amount.
Lenders and leasing firms may need gap insurance from their customers. They are protected against automobile owners who terminate a loan or lease in the event that the vehicle is stolen or wrecked, which is a significant benefit.
It is possible that some gap insurance plans may cover the entire loan sum, which may include any negative equity that is rolled into your new auto loan arrangement.
When you trade in a vehicle for which you owe more than the vehicle is worth, for instance, the negative equity that you have in the vehicle is rolled into your new loan. However, if you rolled negative equity into your new auto loan, you need to be sure to get a gap insurance policy that covers negative equity. This is because not all gap insurance plans will cover negative equity.
When your loan debt is almost equal to or lower than the value of your car, you are able to withdraw gap insurance from your policy. This occurs when you no longer need to have gap insurance.
Does gap insurance cover the following?
The difference between what you owe on a vehicle lease or loan and the amount paid out in a complete loss settlement from an auto insurer is what gap insurance covers. Your deductible is deducted from this amount prior to the coverage being paid out. Only if you owe more money on your vehicle than it is now worth will there be a “gap” to fill.
Does the theft coverage cover gap insurance?
No, gap insurance will pay out in the event that your vehicle is stolen.
Does the gap insurance cover the failure of the engine?
It is not. There is no coverage for engine failure under gap insurance. A complete loss of your vehicle, such as that which occurs in the event of an automobile accident or theft, is the only time that gap insurance will pay out. In the event that mechanical faults occur on their own, neither auto insurance nor gap insurance will cover them.
Is the failure of the transmission covered by the gap insurance?
The breakdown of the transmission or any other technical repairs are not covered by gap insurance, as goes without saying.
Is death coverage included in gap insurance?
It is not the case; the coverage provided by gap insurance only compensates you for the entire loss of your car; it does not cover the expenses of injuries, death, or funeral transportation.
Accidental death to other people is covered by the liability element of an automobile insurance policy from the beginning. Funeral expenses for you and your passengers may be covered by your personal injury protection or medical payments policy, if you have either of these types of coverage.
Is your deductible covered by your gap insurance policy?
The answer is no; the gap insurance that you buy through your auto insurance provider will not typically cover the amount of your collision or comprehensive deductible.
This indicates that if you have a collision deductible of $500 and a gap insurance policy that pays out $3,000 after your collision insurance pays out, the gap insurance policy will pay out $2,500. What is left over is the deductible amount, which is $500.
Some of the gap insurance plans that are sold at dealerships will cover the deductible that is associated with your main insurance policy. However, you should be aware that gap insurance obtained from a dealer is often far more costly than gap coverage acquired from a vehicle insurance provider.