Who Needs Gap Insurance?

Auto insurance coverages are many and varied and gap insurance is just another very important type of coverage you may need to consider when purchasing auto insurance.

• Gap insurance: Covers the difference between the car's depreciated value, and what is still owed to the bank or car dealer.

For instance, say you purchase a new car for $20,000. If your car is totaled you may still owe close to $22,000 to the car dealer when interest is factored in. However, cars depreciate rapidly and your auto insurance may only cover the actual true value of the car, which could be something like $17,000. Basically, that puts you $5,000 short of what you owe the auto dealer. Gap insurance covers this gap in monetary value.

Gap insurance may not be needed if the auto insurance provider covers the full amount that you paid for the car and not it's actual value. Most leased and financed autos will need gap insurance in order to protect the loan company's investment.