When purchasing a new / used car, or maybe you have a car already, you may have already heard about the term, “Gap Insurance.”  You’re probably now wondering if its even worth it.

First off, what is GAP insurance?

GAP insurance is going to protect your vehicle if it were ever totaled by an accident, theft, fire, vandalism, and more.  Basically, if anything happens to it, the GAP insurance is going to cover the difference between the value of your car, as well as your outstanding loan or lease.

To make things simple, lets take a look at the scenario and you can be the judge on if its worth it.

Lets say that you go out and purchase a car for $20,000 and your loan is going to be for that $20,000 over 1 year.

Now, lets say that down the road you get into an accident and the car is wrecked.  The auto company decides that your car is going to be worth $16,000 and you owe $18,000 still.  Now, you’re going to be out that $2,000.  This is where your GAP insurance is going to come into play.

Now, remember that your car’s value is going to dwindle right when you take it off the new car lot.  This is why many might tell you to buy used, rather than new.

Who should get GAP insurance?

I would recommend that those that are going to purchase a new car, finance for more than 60 months, or you’re going to get into a car that’s going to lose its value rather quickly.

How much is this coverage going to cost?

You will find that some insurance companies won’t even offer something like this.  If this is the case, you may have to find someone that’s going to be able to add a rider to your insurance policy.

One thing that you’re going to want to avoid is those dealers that are going to push it onto you yourself.  Call up  your insurance company first, before signing anything over at the dealer to insure that you’re getting something that’s going to work for you.  You don’t want to be scammed here.