Suppose your insured car is totally wrecked and unrecoverable after a major accident or stolen. Your auto insurance may give settlement based on the car’s actual cash value, but this is not the amount you paid for the car at the time of purchasing. Since automobiles depreciate quickly, your settlement may not cover what you still owe on your car loan or lease. That will leave you with no car and a big bill that you have to pay. The gap insurance can help in this kind of unhappy scenario.
What is gap insurance?
Gap insurance is an optional add-on in car insurance coverage that can help the owners of vehicles to cover the ‘gap’ between the amount they owe on their car and the car’s actual cash value at the time of the accident. The actual cash value of a vehicle is determined by taking the replacement value of an automobile and deducting the depreciation of the vehicle due to wear and tear.
What does gap insurance cover?
The gap insurance is easy enough to understand. But what does it cover? Gap insurance coverage is quite versatile, but be aware that it only covers the damage to the vehicle, not other property or bodily injuries resulting from an accident. Here are the common questions that may arise about the gap insurance with their answers.
- Does gap insurance cover theft?
Yes, gap insurance may cover theft in case your car is stolen and unrecovered.
- Does gap insurance cover deductible costs?
No. gap insurance does not cover the deductible costs.
- Does gap insurance cover engine failure?
No, gap insurance only used in the event of a total loss from an accident. It does not cover mechanical failure
- Does gap insurance cover death?
No, gap insurance only applies to vehicle loss and does not cover medical expense or bodily injuries
- Does gap insurance cover negative equity?
Yes, Negative equity is another term for the gap between what you owe on your car loan and the car’s actual cash value.