How does gap insurance work?
What is gap insurance? I was told by my lending rep that I probably should get gap insurance on my car, but I have no idea what it's for.
Answer provided by
Answered on Jul 21, 2021
Eric Schad has been a freelance writer for nearly a decade, as well as an SEO specialist and editor for the past five years. Before getting behind the keyboard, he worked in the finance and music industries (the perfect combo). With a wide array of professional and personal experiences, he’s developed a knack for tone and branding across many different verticals. Away from the computer, Schad is a blues guitar shredder, crazed sports fan, and always down for a spontaneous trip anywhere around the globe.
“Gap insurance is a product intended to lessen your financial burden if you get in an accident. It pays the difference between your car when it’s totaled and the remaining loan balance.
For example, let’s say your car is worth $22,500 when someone hits you and it’s totaled. But your car loan balance is currently $26,500. The car insurance company will only give you the $22,500 actual cash value, and you’d have to pay the remaining $4,000.
That difference is just what gap insurance does: it covers the gap of the $4,000 so you don’t have to.
In some cases, it’s a great investment, especially if you have a history of accidents.”
Did this answer help you?
Ask us a question by email and we will respond within a few days.
Have a different question?
You can meet us at our office and discuss the details of your question.
Browse by topics
What others are asking
Can I keep my car after the car insurance company says it's a total loss?
Do I have to give the vehicle to the insurance company when they give me the check? I was in a car accident and the car insurance company deemed it a total loss. My question is, can I keep the vehicle?
Jul 21, 2021
Is gap insurance really worth the money?
Should I get gap insurance on a new car? I'm in the process of buying a car on an 84-month term. My credit union lender keeps telling me that I should get gap insurance, but I'm not sure if it's worth it.
Jul 21, 2021