When you purchase insurance for a new or used vehicle, you will be presented with a variety of coverage options, one of which is gap insurance. Although this type of insurance has been around for a while, many people are still confused about what this product does and does not cover. Here are the facts about two common misconceptions about gap insurance to ensure you know what you're paying for.
Myth #1 – Gap Insurance Will Pay the Entire Unpaid Loan Balance
Gap insurance is called that because it's designed to cover the difference between the depreciated value of your vehicle and your loan balance after your vehicle is totaled in a collision. For example, due to depreciation, your vehicle was only worth $10,000 when you got into an accident. However, you still owe $12,000. Gap insurance will pay the leftover $2,000 after the insurance company cuts the lender a check for the ten grand, so you can be released from the loan obligation free and clear.
However, gap insurance only pays for the part of the loan that went towards financing the vehicle. It will not cover any extraneous items that may have been built into the car note. If you purchased an extended warranty and it was added to the auto loan, gap insurance will not pay for that. It also won't cover any balances you rolled over from a previous auto loan.
So, going back to the previous example, if $500 of the leftover $2,000 was used to cover the cost of a warranty, gap insurance would only pay $1,500. You would still be responsible for paying the $500 balance.
Myth #2 – You Must Buy Gap Insurance from the Dealer
Another misconception is that you must buy gap insurance from the dealership when you purchase your car. This myth generally comes from the fact that some salespeople will attempt to push this product on buyers because they get a commission for every policy they sell, so they make it seem like people can't drive off the lot without it.
Contrary to how the auto salesperson may make it seem, you can get gap insurance from any insurance provider. In fact, getting it through the dealership may not be the best option at all, since those policies tend to be priced higher. If you want gap insurance, check with your own provider first to see what kind of deal you can get. You're more likely to get the policy at a lower cost through a company you're already insured with than a third party you may not have heard of before.
For more information about gap auto insurance or to obtain coverage for your vehicle, contact an auto insurer.