Note that a car’s actual cash value is the car’s monetary value at the time of the accident, not the car’s original price.
It’s interesting to also note that this insurance policy applies if your car is totaled or stolen. Car’s owners should consider adding this coverage if the amount left on their loan is more than their cars are worth.
A typical example is as a driver if you have $25,000 on your loan and your car is only worth $20,000. This coverage will help pay off the balance of your loan—the $5,000 gap—minus your deductible.
How Gap Insurance Works
Before we shall proceed with what gap insurance covers, let’s quickly take a brief look at how this insurance policy works. As a car owner, gap insurance covers you from depreciation i.e loss in valus.
Sometimes, your car can depreciate significantly the second you buy it. For instance: A $40,000 car could drop to $37,000 when you drive it off the lot. That then leaves a “gap” between your loan amount and your car’s value.
Gap Insurance Coverage
As earlier promised in this article, gap insurance gap insurance coverage is quite versatile, but be aware that it only covers damage to your vehicle, not other property or bodily injuries resulting from an accident. The insurance policy applies any time your vehicle is totaled from physical damage and your insurance pays out.
Listed below are a few common questions related to gap insurance coverage.
1. Does gap insurance cover negative equity?
Yes. Negative equity is another term for the gap between what you owe on your auto loan and the car’s actual value.
2. Does gap insurance cover engine failure?
No. Gap insurance is only used in the event of a total loss from a covered accident, not for mechanical repairs.
3. Does gap insurance cover death?
No. Gap insurance is only applicable to vehicle losses and does not cover bodily injuries, medical expenses, lost wages or funeral costs.
4. Does gap insurance cover theft?
Yes, gap insurance may cover theft in the event your car is stolen and unrecovered.
5. Does gap insurance cover deductible costs?
No. Even in the event of an accident covered by your gap insurance policy, you would still have to pay your deductible. In other words, if the “gap” reimbursement amount is $4,000 and your deductible is $500, your total reimbursement amount would be $3,500.
How Long Gap Insurance Last
For those of us that want to kno, let stress here that once you add gap insurance, it can apply for as long as the life of your policy. If you ever do want to remove it, you can simply make that change online.