If you are still working on paying off a car loan, you may want to consider adding gap insurance to your auto policy. Gap insurance is one of the best ways to ensure that you do not end up underwater, owing money on a loan, after your car is totaled in an accident or stolen.
Gap Insurance Is Designed For Individuals Who Owe More Than Their Vehicle Is Worth
Gap insurance is designed to assist you if your car is totaled or stolen while you are still paying it off. In both of the instances listed above, if you have full coverage, and your car is totaled, your insurance should cover the cost of your vehicle.
However, your insurance will cover what is referred to as the ACV or actual cash value of your car. They will take the original sticker price of your vehicle and use a specific formula to determine how much your car has depreciated since it was produced. Your insurance company will then refund you the ACV of your car.
You can use calculators online to the approximate cash value that your insurance company may assign to your car if it was totaled or ruled a complete loss due to instances like theft. If the amount you owe on your car is greater than the value that the online calculator determines your car is worth, that is where gap insurance comes in.
Your gap insurance will pay you the difference between the actual value of your car and the amount you still owe to the bank. That way, you will be able to pay off your loan with your insurance money, and will not be stuck with a car loan but no car.
Gap Insurance Is Not Necessary If Your Vehicle Is Almost Paid Off
Although gap insurance can really help you out if owe more than your vehicle is worth still, it really does you no good to keep paying for gap insurance once you own less than your vehicle is worth.
If you owe less than your vehicle is worth, gap insurance will do nothing for you. If your car is totaled, your insurance company will only pay you the ACV of your car since that will compensate you for the loss of your vehicle, and it should be more than enough money to pay off your loan.
If you do add gap insurance to your auto policy, make sure you pay close attention to the ACV of your car in comparison to how much you owe. Once you owe less than the cash value of your car, you can drop gap insurance from your auto policy.
Contact an auto insurance company like Martin Insurance Company to learn more.