Gap insurance is insurance that covers the difference between the value of your car and the total amount owed on your loan. This is important coverage if your vehicle is not worth as much as the loan, or is close in value.
It comes into play when you have an accident and your car is not repairable (known as being “totaled”), and the insurance company pays you the value of your car. If, for instance, your car was worth $10,000 at the time of the accident but you owed $15,000 on it, you have a gap of $5,000.00. Without gap insurance, you would still be responsible for the additional $5,000.00 to the car finance company. Gap insurance, which is an extra add-on to your policy, covers the difference. With a financed vehicle, it is important to know the value of your car or truck to make sure that you are completely covered in case of an accident that totals the vehicle. Many people are surprised to find that the insurance does not simply pay off the loan.
This is one of the questions that you should ask your insurance agent, as well as questions about your uninsured and underinsured motorist coverage, as well as total pay-out limits on your policy. The cheapest policy is never the best policy, and it is important to know what you are actually paying for and what your coverage protections actually are.
DISCLAIMER: All legal principles quoted are valid as of the date of writing in the State of California. However, you should NEVER base your actions on a legal article, blog, or internet story, as facts in real life are complicated. You should have your case evaluated by an attorney experienced in the area of law needed for your case. In addition, there are often exceptions and potential changes to results that occur due to facts that you may think are trivial or unimportant. This article should not be taken in any way as legal advice on your specific legal matter.
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