How Gap Insurance Can Help

• If you still owe a balance on your car loan and it's totaled in a crash or stolen, there's a good chance your insurance company won't give you enough money to pay off the rest of the loan. Gap insurance actually covers the "gap" between what your car is worth and what you still owe, freeing you to purchase a new vehicle quicker and easier.
  
  Gap insurance is a good idea if you lease your vehicle, still have four more years to pay off your loan, purchased a new car but didn't have the standard 20 percent to put down or rolled debt from your last vehicle into your new vehicle. Any of these situations would leave you owing the remainder of your loan balance if your car is lost to a crash or stolen.
  
  A real life example is if you purchase a car for $15,000 but a few months later you are involved in a crash that totals your car. Your insurance company only gives you enough to cover its value of $10,000 but now you are on the hook for the remaining $5,000. Gap insurance would pay the $5,000 on your loan so you are free to purchase or lease a new vehicle.
  
  

How to Obtain Gap Insurance

• You can purchase gap insurance when you lease or purchase your vehicle at the dealership. Also, many banks and credit unions offer gap insurance with their auto loan program so you should ask when you obtain your loan.
  The cost for gap insurance can run from $500 to $700 for coverage and not all states offer gap. Gap insurance is not available in Connecticut, Louisiana, New Hampshire, New York, Virginia, Vermont and Washington (state). Coverage only applies to loans up to 84 months.
  
  

Gap Insurance Drawbacks

• Just because you've been in an auto wreck or your car has been stolen doesn't mean that you have an automatic payday with gap insurance. Several factors must be in place before this can happen that some car owners don't realize.
  If you're leasing a car, you must be in compliance with all terms of the lease. Also, your gap insurance can't be honored if you don't have collision or comprehensive auto insurance.
  Remember to be careful of insurance companies trying to sell you gap insurance after you've already purchased it at the dealership or elsewhere. Be aware of what you are signing so you don't end up paying for two policies.
  Be sure you follow all policies and instructions from your insurance company if you've been in a car accident. Some companies require you to continue making car payments even after the vehicle has been totaled.