GAP Coverage is a first party Coverage (for you) that does just what is says, covers the gap.  What gap?  The gap between what you owe on your Vehicle and what your insurance determines to be it’s market value in the event it is deemed a total loss from a covered loss.

 

Usually gap coverage is most common when buying a new car, especially when a large downpayment is not being made.  As we all know, when you buy a new Car and drive it off the lot, the value does drop.  How much it drops depends on many variables, two of the big ones being the type of Vehicle it is and the demand in the market for that vehicle.  

 

In most cases, if you lease a vehicle there will be requirement to carry gap coverage, which is to protect the finance company but does also protect you in that you wouldn’t be responsible for the difference between the actual cash value or ACV of your vehicle and the amount still owed to the finance company.

 

It may be easiest to demonstrate how this coverage would work by using an example:  You purchased a 2010 Ford Taurus brand new for 25,000 and a year later you were in an accident and the insurance company has determined your vehicle to be a total loss as the damages to repair the Car back to pre-accident condition are greater than the ACV of the car.  Because you financed the car and put a small down payment down, when you consider the interest you paid in year one and the principal paid, you still owe $23,000 on the car to the finance company.  Your insurance company runs a market value of your vehicle and it determined to have an ACV of $19,000. Your insurance company would be responsible to pay the $19,000 to you, not the $23,000 you still owe.  Now you are responsible for $4,000 for a vehicle you no longer own.  Not fun!

 

This is where gap coverage would come in: if you had purchased gap coverage when you purchased the vehicle, your insurance company would pay the remaining $4,000 which would payoff your loan.  As you can see, those extra few bucks a month for this coverage clearly would have paid off…

 

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