Q: What is Gap Coverage?

December 17, 2013 12:53 PM

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As cars continue to improve, insurance plans have to cover more. Most often, full coverage on an insurance plan guarantees that you will get the market value of your car paid to you in the event that your vehicle is totaled. Unfortunately, simply driving a new car out of the parking lot significantly drops the market value of the car. What happens if you buy a new car, drive it off the lot, and the vehicle is totaled shortly thereafter? That is where gap coverage comes in.

Gap coverage is exactly what it sounds like, insurance that fills a gap in your plan. What is that gap, though? With comprehensive and collision coverage on a full-coverage car insurance plan, the insurance company will pay up to the market value of the car if the car is totaled. However, when you buy a new car, the market value drops about 25% as soon as you drive the car off the lot. This means that if you get in a car accident a few days after buying a $25,000 car, you very well could only get $18,750 back from your insurance company. Gap coverage covers the remaining $6,250 that you otherwise would have lost. Instead of having to buy a replacement car for $18,750, and one you probably like less than your original, you can simply purchase an exact replacement of your totaled vehicle.

The best thing about gap coverage insurance plans is that they are affordable. They cost significantly less than any comprehensive coverage plan. For the amount of money that they can end up saving you in any sort of accident with your newly purchased vehicle, many would argue that the price is absolutely worth it. Imagine having your new vehicle totaled without any sort of gap coverage. That is thousands of dollars that you cannot get back unless you have the proper coverage with your insurance plan. Many insurance companies include gap coverage as an option in your current plan. If not, the auto dealership is often able to provide gap coverage. If the dealer does not offer any options, there are plenty of places online to purchase gap coverage to protect your new vehicle.

Though insurance can often seem like a pessimistic approach to taking care of your car, it can end up paying off if bad luck hits. Gap coverage is relatively cheap and can end up saving you thousands of dollars in the case of an accident with your new car. Shopping for gap coverage is simple. If this much peace of mind is what you want, there are plenty of options to buy a plan, so you can shop around to find the cheapest option available.

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