GAP Insurance - What is It?

When purchasing or leasing a car, you will probably hear about GAP insurance. You might think that your new car is fully covered under your comprehensive or collision coverage, but that isn’t always the case. GAP insurance will make up the difference of what your car was bought for and how much the insurance company pays out.

GAP insurance will make up the "gap" between what you owe on your car and your vehicle's current market value. For example, if you owe $20,000 on a car and it is totaled in an accident, your insurance company will pay out the current market value of the vehicle. If that value is only $15,000, you’re stuck making up the $5,000 difference. But if you have GAP coverage, it would pay the difference.

GAP insurance is important (and often required) when leasing a vehicle. Other stipulations with GAP coverage is that you must also carry comprehensive and collision coverage. Comprehensive coverage will pay an amount if your car is stolen or damaged by means other than a collision (i.e. falling tree, vandalism etc.). Collision coverage will cover car accidents involving another vehicle or if you hit a stationary object.

Even if you don’ need GAP insurance, you will need to update your car insurance policy if you buy or lease a new car. To make sure you aren’t paying too much for car insurance, compare multiple quotes with InsWeb.com to find the best price for the coverage you need.