Gap Coverage is really for folks who are buying new cars or cars that are close to new. Oftentimes if you look at your insurance policy you’ll see it called Auto Loan-Lease coverage. This is coverage for the gap between what you would get paid in a total loss on your vehicle and what you have in your loan. So let’s imagine you purchased a thirty thousand dollar brand new car. You drove that car off the lot and six months later you got into an accident that is equal to the vehicle. You may have a loan that’s worth more than the value of your car. So let’s say when the adjuster comes out and gives you the total value of your vehicle they say it’s worth twenty two thousand dollars. Your loan is still for twenty nine thousand dollars. You have a seven thousand dollar gap between the check that the insurance company is going to write you and what you still owe on your car.
If you don’t have gap coverage, or Auto Loan-Lease coverage, you’ll have to pay those seven thousand dollars out of your pocket. If you have Gap coverage the insurance company will write a check for that seven thousand dollars on top of what they paid out on your totaled vehicle.
What You Should Do?
Well, I’d go to KBB.com and find out the trade in value on your vehicle. Not the retail value, the trade in value. That’s going to get you a ballpark idea of what an adjuster would give you if your car was totaled. Take that number and then look at the loan you have. See if they match each other. If your loan is less than that trade in value, you may be OK without that gap coverage. if your loan is much more than that trade in value then gap coverage is something you should consider.