The world of auto insurance can be confusing to navigate, which is why it’s crucial that you work with a reliable insurance agent to ensure you’re properly covered. One of the most misconstrued concepts is gap insurance—a special form of insurance that can protect you from encountering a massive loss on a loan or leased vehicle. Find more information below on gap insurance and how it can protect you.
Let’s say you lease or finance a new vehicle and get into a major accident which results in a complete loss. Even though your car has been totaled, you will still be held financially liable for paying off the remainder of your loan.
Collision insurance coverage will usually only cover the costs of the actual cash value of the vehicle (also sometimes referred to as the fair market value). This can be slightly helpful, but it means that you will still be in debt and need to pay off the remainder of your lease or loan. This is where gap insurance comes in.
In the event of a leased or financed vehicle being totaled, gap insurance can cover the cost difference between what you still owe on the car, and the insurance company’s assessment of your car’s cash value. This means you won’t need to worry about having to foot the entire bill in the case of an accident.
Even though gap insurance is great for protecting you from financial fallout after an accident, there are certain situations that it will not cover, such as the following:
– Vehicle repairs
– Down payments for new vehicles
– Extended warranties
– Financial hardships
When shopping for a new insurance policy, make sure you consider gap insurance as a supplementary benefit, especially if you are planning to lease or loan your next vehicle.
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