No one wants to pay for a vehicle they no longer drive, yet many of us purchase vehicles for more than their actual cash value, leaving us with the potential to be paying on a loan for a vehicle that is totaled.
For example, you purchase a brand-new car and a few days after you drive off the lot, you hit a deer and it totals the car. The loss is covered because you carry full coverage, but how much coverage do you receive? Most carriers will only pay out the actual cash value of the vehicle at the time of the loss. If you paid more for the car than what it is worth, then you have a gap between what you owe and how much you will receive from the insurance carrier. This is where gap coverage becomes invaluable.
Gap coverage is designed to pay the difference between the amount paid from the insurance company and the amount of the loan (within reason) after a vehicle is totaled. This coverage is also available through dealerships, but at a much higher cost. Also, once you add gap coverage at the dealership, you pay for it for the life of the loan. Gap coverage through your insurance carrier will cost around $20 for the year and can be removed at any time. If you find that your vehicle is worth more than you owe, a quick call to your insurance agent will give you the opportunity to remove a coverage that is no longer needed.
Keep in mind that not all vehicles are eligible for gap coverage, so contact your insurance agent before you purchase your next vehicle to see if it is available.