What Is Gap Insurance?
Gap insurance is an optional type of car insurance that covers the difference between what you owe on your car loan and the depreciated value of your vehicle if it's totaled, providing financial protection for leased or financed vehicles.
How Does Gap Insurance Work?
Gap insurance is a type of auto insurance typically purchased for leased or financed vehicles. If your vehicle is totaled, your standard auto insurance policy will reimburse you for its current value, which could be less than the amount you owe on the loan. Gap insurance would cover that difference. In the event of a total loss, you must file an auto insurance claim before filing one for gap insurance.
Imagine you've purchased a car for $30,000 and financed it with a loan. A year later, the car is in an accident, and your insurance company determines its current market value to be $22,000 due to depreciation. However, you still owe $28,000 on your loan. In this scenario, gap insurance would cover the $6,000 difference between your remaining loan balance and the insurance payout, ensuring you're not left with the financial burden of paying off a loan for a car you no longer have.
What Does Gap Insurance Typically Cover?
Gap insurance is designed to cover the difference between the outstanding balance on your car loan and the depreciated value of your vehicle if it's declared a total loss. Gap insurance only steps in when your standard auto insurance settles for the current market value, which might be insufficient to cover your remaining loan amount.
What Is Typically Not Covered by Gap Insurance?
- Vehicle repair costs
- The cost of a rental car while your car is in the repair shop
- Damage to someone else's property
When Do I Need Gap Insurance?
Considering gap insurance? Some situations that may call for gap insurance include:
- Owing more on your car loan than your vehicle's value
- If your car is totaled and standard coverage pays less than your loan balance
Talk to a GEICO representative today to determine if our offerings align with your needs without the need for gap coverage.
Is Gap Insurance Worth It?
While GEICO's auto insurance offerings do not include gap insurance, its value depends on your situation. If the actual value of your car is greater than the amount you owe on the car, then gap Insurance may not be necessary. If the potential gap between loan balance and car value concerns you, it might be worth exploring.
The above is meant as general information and as general policy descriptions to help you understand the different types of coverages. These descriptions do not refer to any specific contract of insurance and they do not modify any definitions, exclusions or any other provision expressly stated in any contracts of insurance. We encourage you to speak to your insurance representative and to read your policy contract to fully understand your coverages.