Understanding all of your auto insurance options can save you money and plenty of stress. One thing that can be confusing is gap insurance. Knowing the difference between auto and gap insurance can help you make a decision that is in your best interests. Both serve different purposes, and an insurance agency can help you determine if you should consider gap insurance.
Here is a breakdown of what each type covers and why you might need them.
What Is Auto Insurance?
Auto insurance or car insurance is a term that covers a broad range of policies designed to protect you and your vehicle on the road. Most states require drivers to have some form of auto insurance. Getting multiple quotes is always a good idea to help you find an affordable policy.
Here are the different types of auto insurance available.
Liability Coverage
Liability coverage will cover any costs related to injuries or any property damage you cause to others in an accident. This type of insurance doesn’t cover your own injuries or vehicle damage.
Collision Coverage
Collision coverage for your vehicle pays for the damage during a collision with another car or an object, no matter who is at fault.
Comprehensive Coverage
Comprehensive coverage covers non-collision-related damage to your car, such as vandalism, theft, fire, or even natural disasters.
Personal Injury Protection (PIP)
Personal Injury Protection will take care of medical bills for you and any passengers after an accident, regardless of fault.
Uninsured/Underinsured Motorist Coverage
This coverage protects you if you are ever involved in an accident with a driver who doesn’t have any insurance or not enough coverage.
These types of coverage can be customized to best fit your needs and budget. Auto insurance provides essential protection for everyday driving while also helping you stay in compliance with state laws.
What Is Gap Insurance?
Gap insurance is an additional policy that covers the “gap” between the money you owe on the remainder of your loan and the actual cash value (ACV) of the car in case of a total loss. Gap insurance can be crucial if your car is totaled in an accident or stolen, as it prevents you from being stuck with a loan balance on a car you no longer own.
For example, if you owe $20,000 on your auto loan but your car is only worth $15,000 at the time of the loss, standard auto insurance would pay you the ACV of $15,000. Without gap insurance, you would still owe the remaining $5,000 on your loan out of pocket. In other words, gap insurance covers that $5,000 difference.
Who Needs Gap Insurance?
Gap insurance can be beneficial for a variety of situations. Discussing your needs with an insurance agency is always a great idea if you are unsure about your coverage.
Here are a few examples of when gap insurance may be a smart investment.
New Car Owners
New cars depreciate quickly. If you financed a new car, gap insurance can help protect you from owing more money than the car is worth.
High Loan-to-Value Ratio
If you financed a large portion of your car’s purchase price, you might owe more than the car’s ACV for a significant period of time.
Long-Term Loans
Loans extending five years or more can mean slower equity build-up, increasing the risk of a gap between the loan amount and the car’s total value.
High Depreciation Vehicles
Certain vehicles lose value much faster than others. If your car is known for rapid depreciation, gap insurance can give you extra peace of mind.
You also need to remember that gap insurance isn’t always necessary. If you made a large down payment or if your loan balance is lower than the value of the car, gap insurance might not be worth the extra cost.
How Do Auto Insurance and Gap Insurance Work Together?
Auto insurance and gap insurance complement each other. While auto insurance covers various damages and liabilities, gap insurance steps in for financial protection if your car is totaled or stolen. Together, these plans can help you make sure that you are not left with unexpected expenses that could strain your finances.
Still not convinced? Consider the following scenario. You bought a new car for $30,000 with a small down payment and financed the rest. After a year, your car is worth $25,000, but you still owe $28,000 on your loan. If an accident totals your car, your auto insurance could cover the $25,000 ACV, and gap insurance could cover the $3,000 difference. On the other hand, without gap insurance you would be responsible for paying that $3,000 out of pocket.
How to Purchase Auto Insurance and Gap Insurance
Purchasing auto insurance typically involves comparing policies from various providers to find the best coverage and rates. Not all insurance companies are equal, which is why it’s good to do plenty of research. An insurance agency can help compare multiple policies while saving you a lot of time and energy.
Keeping a few tips in mind is always important in helping you choose the right policy.
Assess Your Needs
Each person’s needs are different. You can determine the amount of coverage you need based on your vehicle, financial situation, and driving habits.
Compare Insurance Quotes
Be sure to get several quotes from insurers to compare prices and coverage options. An insurance agency can handle this part to save you a lot of time.
Check Discounts
Look for discounts that you might qualify for, such as safe driver, multi-policy, or good student discounts. An insurance agency will make sure to check for all available discounts to save you as much money as possible.
Read the Fine Print
Understand the policy details, including deductibles, limits, and exclusions. Not understanding your policy can cost you a lot of money and create plenty of stress.
Contact Wellcovered Insurance to Learn More About Auto Insurance!
Wellcovered Insurance is an agency that partners with many insurance providers. Our goal is to help you find the best insurance for your needs and budget. We also offer many insurance options besides auto insurance, such as home, boat, motorcycle, business owner’s policy, and much more.
Providing superior customer service and making an impact in the local community is always our priority. We strive to stay helpful, over-communicate, take the best action, define issues, and always seek to find the best solutions.
Give Wellcovered Insurance a call today to learn more about gap and auto insurance options!
