what exactly is gap insurance? how does it work?

Question

i have had my car for 3 yrs have gap insur. i was screwed from the dealership so my car is worth like 10,000 now and i owe about 20,000 i'm just worried w/ winter coming soon that if something happened.

Answer 1

Actually, gap insurance protects everybody but you, even though it sounds good. Say you lease a vehicle, and it is totalled after 6 months. Good news (it sounds like), you don't owe anything, gap insurance pays the shortfall between the actual cash value and the buy-out. But what if you had put a substantial down payment on it? chances are it is gone, because gap insurance only protects a shortfall, not your equity. So, if you have a 3 year lease, and the car is written off after 33 months, your equity, the part of the vehicle you have actually paid off, is toast. If you lease a car, ask your insurance agent, not your leasing agent, about the availability of leased car protection. If you buy a vehicle, ask about new car protection. That isn't to say you don't need gap insurance if your outstanding balance stays higher than the ACV of the car, mind you.

Answer 2

It is something typically purchased through the lienholder when you buy the vehicle, although insurance companies offer it as well.

If, for example, in 2 years you total the car. The car has decreased in value. If you still owe $20,000 for a vehicle that is now only worth $15,000 you still owe the bank $5000.

The "gap" is the difference between what is owed on the car and what the car is worth if totaled.

I am a claims adjuster and when people are "upside down" on the loan, they pay on vehicles that they can't even drive for years sometimes.

I am paid up on my loan and then some. It's worth the gap insurance when you know you owe more than what it's worth.

I run the NADA on my vehicle and know it's worth more than I own.

Answer 3

I cannot tell you exactly what it is but I had it when I got in a car accident after having a newly financed vehicle for only 4 months and the car was totalled, because I had GAP insurance I did not have to pay off the car. The car was totaled. The accident wasnt my fault but w/o the insurance I would be making car payments on a car I didnt even have. I HIGHLY recommend it, any questions you can call your insurance company.

Answer 4

GAP insurance can provide valuable protection during the early years of your car's life if you have a loan or a lease.

If a loss occurs, GAP insurance will pay the difference between the actual cash value of the vehicle and the current outstanding balance on your loan or lease. Gap Insurance protects your vehicle lease or loan. Sometimes it will also pay your regular insurance deductible.

If your vehicle has been totaled by accident, theft, fire, flood, tornado, vandalism, or hurricanes your insurance company typically pays the actual cash value. That may be less than its actual retail value. It is often considerably less than the actual amount you still owe on your loan or the amount due for a lease payoff.

The amount between your insurance deductible and the loss from this financial shortfall is the “gap” you can be left owing.

Answer 5

you buy a new car and wreck it before you make your first payment ,the insurance company is only going to pay 99 % of it off ,you still owe for the dealer add ons and BS the GAP covers the difference of what they will pay and what you really owe

Answer 6

husband deceased own for new car have gap insurance is car paid off

Answer 7

Here is a very useful link that will help answer your question: http://personalinsure.about.com/od/policybasics/a/aa021405a_2.htm