Auto insurance may help you cover the damages that arise from being in an auto accident, but these policies typically only pay for the actual cash value (ACV) of your vehicle if it is totaled in an accident. If you owe more on your auto loan than your car is actually worth, this could result in you still paying for a car that you no longer drive. To avoid this, drivers should consider purchasing guaranteed asset protection (GAP) insurance to cover the difference between the amount that’s left on your loan and the ACV of your totaled car.
Gap insurance policies can help you pay off the remainder of your auto loan if your car is totaled and you owe more than the car is actually worth. Learn more about this coverage below, and contact KSA Insurance to request a quote today.
What is Gap Insurance?
Gap insurance is an optional coverage that can be included alongside a standard auto insurance policy.
If you are involved in an accident and your car is totaled, gap insurance covers the difference between how much you still owe your lender and the vehicle’s ACV. Assuming your auto insurance policy reimburses you for the entire ACV of your vehicle, gap insurance could ensure that your out-of-pocket expenses are minimal after your car is totaled.
Gap insurance doesn’t just cover auto accidents, either. If your car is stolen, burned in a fire, destroyed by a natural disaster, or is totaled in any other way, gap insurance may help cover the difference between what it is worth and how much you owe.
How Much Does It Cost?
Car gap coverage is typically very affordable— often less than $10 per month. However, keep in mind that rates vary by insurer and depend on several other factors, including:
- Value of your vehicle
- Driving record
- Claims history
While rates may vary by lender, the small cost is often justifiable considering the amount it could save you if your car is totaled in an accident.
How Does Gap Insurance Work?
When you purchase a new car, it immediately begins to depreciate. If you finance the vehicle with an auto loan, it may soon become worth less than what you owe.
For example, say you purchase a new car and finance it with a $40,000 auto loan. After a few years, your car is now only worth $25,000 but you still owe $30,000. If you are involved in an auto accident and your car is totaled, your auto insurance would likely only cover up to your vehicle’s ACV, which in this case, is $25,000. Without gap insurance, you would still be responsible for the $5,000 remaining on your auto loan.
However, with gap insurance, your insurer may reimburse you the entire $30,000 that you still owe (not including your deductible).
Keep in mind that the entire amount that your insurer pays out will go to your lender to pay off the totaled vehicle. If you still need help purchasing a new car after totaling your old vehicle, you may need new car replacement coverage. This coverage can often be purchased alongside gap insurance when you buy a new car.
Who Needs Gap Insurance?
If you’re financing or leasing a vehicle, gap insurance may or may not be required by your lender in addition to collision and comprehensive coverage. Whether or not it’s required, though, it’s important to consider purchasing gap insurance to avoid suffering significant financial damages in the future.
Gap insurance is worth considering if you’re:
- Leasing a vehicle
- Financing a new car
- Your down payment was less than 20%
- You have a long loan term
- You have a loan rollover
All vehicles lose value as soon as they’re driven off the lot, making it important for vehicle owners to take steps to protect themselves against depreciation. If you’re concerned about your vehicle becoming worth less than you owe on your auto loan, gap insurance is worth considering.
Request a Quote
Gap insurance provides essential coverage for vehicle owners that are underwater on their auto loans. If your car is totaled or stolen, gap insurance can help ensure that you are able to pay off your auto loan in full with minimal out-of-pocket expenses.
At KSA Insurance, we work with drivers in South Carolina and across the southeastern United States to help them find affordable auto insurance policies that protect them and their vehicles while on and off the road. Contact us today to request a quote.