GAP coverage pays the difference between the actual cash value and associated outstanding expenses. It is also called loan/lease gap coverage. Some of the different types of expenses associated with your vehicle include unpaid deductible, finance charges, mileage, loan charges. It can offer protection for a leased or loaned vehicle.
If your car becomes completely damaged in an accident, your insurer will pay for the actual cash value. The actual cash value paid by the insurance company may be lower than the total amount you owed to the loan company. Gap insurance coverage will pay the difference between the total owed amount and total amount paid by insurance company. This kind of coverage is usually provided when you buy auto insurance policy.
For example, you buy a car and the car worth $35,000. The down payment for the car is $1000. The rest of the expenses is paid in 35 months. After that, you purchase comprehensive insurance and collision insurance for your car. You choose a deductible worth $1000. When you meet with an accident, you still owe the loan. If the insurance company decides to pay $32,000, you still owed $1000 in loan. If you have Gap insurance, the insurance company will pay the $1000 and your deductible so that you don’t have to pay any fee.
Different auto insurance companies use different methods to determine the cash value of the car. If your car is new, the value will drop by 25% – 40% in 4 months. Most car owners assume that they will receive a compensation that is equal to the amount they pay if their car becomes totaled.
