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What is gap insurance on a car loan?
I was looking over my terms and conditions for my new car loan and my lender mentioned gap insurance. I'm not sure what that is, but they recommended I get it. How does gap insurance work?
Emily Maracle · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
Good job looking over your terms and conditions! Many people don’t look at them and are taken by surprise when something happens.
Gap insurance
protects car buyers from financial strain if they took out a loan to purchase a vehicle. Should the driver get into an accident and total the vehicle before the loan is paid off, gap insurance would cover the difference between what is still owed on the loan and the actual cash value
of the car.Cars depreciate in value very quickly, especially within the first year. That’s why, depending on the loan terms, the car buyer may end up owing more on the loan than what the car is worth!
To determine whether you need gap insurance, you can use resources like
Kelley Blue Book
or Edmunds to determine the value of your car. Then, you can look at what you owe on your loan. If your car is worth less than what you owe, gap insurance is worth considering—especially if the thought of having to pay the difference scares you!You can price gap insurance through your lender or your car insurance company. In some cases, car insurance companies’ gap policies will be cheaper and will also allow you to remove coverage when you no longer need it.
Should your current insurance company not offer gap insurance, shop around! The
Jerry
app makes it easy. Jerry finds personalized quotes based on the coverage you need, ensuring you always have the best rate!View full answer
- Gregory R.
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