If you are a buyer or lessor of a new car and you’re obtaining auto insurance, think seriously about including “Gap Insurance” in your insurance policy. Gap auto insurance in most cases, is not a requirement to obtain coverage for a vehicle, but certainly comes in handy when there is a loss on your vehicle that is greater than the valuation of your insurance company.
Gap insurance essentially covers the “gap” or difference between what you owe on a vehicle and what your insurance company says it is worth when there is a total loss to the vehicle such as when your vehicle is stolen or written-off in an accident. Make sure you read your policy paying special attention to what is covered under Gap insurance and what scenarios and circumstances will validate the pay-out of gap insurance.
Policies for gap auto insurance are not uniform in coverage and you simply cannot assume that a payout for the difference between what you owe on the vehicle and what the vehicle is worth is guaranteed. Read the terms and conditions carefully to ensure your expectations are met. Also, keep in mind that typically Gap insurance applied to new vehicles only since the rate of depreciation is far greater on a new car than on an old car.