When you owe more on your car loan or lease than that, gap insurance comes to the rescue. Although rare, some gap insurance can also cover your comprehensive or collision deductible, the amount subtracted from a claim payout.
Below is that example in a nutshell. Difference between the value of your car minus deductible and your loan balance. With gap coverage, driver pays. Without gap coverage, driver pays. Ultimately, if you do have a lease or newer loan, you want to think about whether you can afford to pay the difference between its balance and the value of your car. You can generally only buy gap insurance within three years of buying a new car.
Your car is no more than two to three years old. You are the original owner of the vehicle. There are three main ways to buy gap insurance:. From your auto insurer , as part of your regular insurance payment. From a company that sells gap insurance only. Stand-alone gap insurance is typically sold online through a one-time purchase from a website such as Gap Direct. Through the dealership or lender , rolled into your loan payments.
If you buy through your dealership or lender:. When you drive with quality coverage, you drive with peace of mind. Allstate auto insurance can help you stay protected for wherever the road takes you. If you're leasing or financing a new car, many lenders require you to have collision and comprehensive coverage on your car insurance policy until your car is paid off.
Gap insurance is meant to be used in conjunction with collision coverage or comprehensive coverage. If you have a covered claim, your collision coverage or comprehensive coverage would help pay for your totaled or stolen vehicle up to its depreciated value. According to the Insurance Information Institute III , when you drive a brand-new vehicle off the lot, its value immediately decreases. And, most vehicles' value depreciates about 20 percent in the first year of ownership.
But, what if you still owe more on your loan or lease than the vehicle's depreciated value? That's where gap insurance may help. Gap insurance coverage may apply if you're underwater on your auto loan meaning, you owe more than the car is worth when your vehicle is stolen or totaled.
Whether a vehicle is declared totaled depends on state laws and your insurer's discretion. Keep in mind that, in the above scenario, the car insurance reimbursement goes completely to your auto lender to pay off a car that's no longer driveable. If you think you would need help buying a new car after yours was totaled, you might want to consider purchasing new car replacement coverage. You may be able to get gap insurance after you buy a car, depending on the model year of the vehicle.
Gap insurance isn't just sold at car dealerships — many insurers offer gap insurance as part of a car insurance policy. And, according to the III, buying gap coverage from an insurance company often costs less than buying it from a car dealership.
Some insurers require your vehicle to be brand new in order for you to purchase gap insurance. That may mean:. An insurance company will total a vehicle if the cost to repair it is more than what it is worth or if it will remain unsafe even after it is repaired.
Unfortunately, an insurance company totaling a vehicle is not required to pay the car loan balance in a settlement. The insurance company is only obligated to pay the Actual Cash Value ACV of the vehicle—the amount you will need to purchase a comparable used vehicle. This amount can be far less than what you owe on your vehicle loan.
If you owe more than your vehicle is worth, you should take certain steps to protect yourself. These steps include the following:. If you will not have a large down payment to pay on the vehicle you purchase to replace your totaled one, you may want to consider purchasing gap insurance to protect yourself in case this new vehicle is totaled in the future. Do you have questions regarding your property damage claim after an auto accident? We are not responsible for the content of any third-party sites linked from this page.
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