Gap insurance is an optional insurance coverage that helps pay off your auto loan if your car is totaled or stolen and you owe more than the car’s depreciated value.
This type of coverage is only available when you finance a new car and you can not buy get it later!
Gap insurance helps pay the gap between the depreciated value of your car and what you still owe on the car.
How it works?
Let’s say you are buying a brand-new car for $50,000. Plus you will pay taxes, fees etc… Total around $57.000. You still owe $57,000 on your auto loan when the car is totaled in a covered collision. Your collision coverage would pay your lender up to the totaled car’s depreciated value — say it’s worth $40,000. If you don’t have gap insurance, you would have to pay $17,000 out of your own pocket to settle your auto loan on the totaled car. If you have gap insurance, your insurer would help pay this $17,000.