What Is Gap Insurance for Cars?
Gap insurance, also called loan/lease gap coverage or auto loan/lease coverage, provides a financial cushion if your totaled or stolen vehicle turns out to be worth less than what you owe on your car loan or lease.
When a car is totaled or stolen, your auto insurance gives you a settlement based on your car’s actual cash value (ACV), not what you paid for it. Since a vehicle depreciates the minute you drive it off the lot, your settlement may not cover what you still owe — leaving you with a big bill and no vehicle. Gap coverage is insurance that helps pay off your car loan when there’s a difference, or “gap”, between what you owe and the car’s ACV.
Is Gap Insurance Worth It?
From supply chain disruptions to increased repair and labor costs, the automobile market is ever-changing. Gap insurance can help you close the “gap” on how much your vehicle is worth and how much is left on your loan or lease.
While this optional coverage provides clear benefits, whether you need it depends on your specific situation. If the potential gap between your loan or lease balance and the value of your car is of concern, gap insurance is likely worth exploring.
