If you’ve bought a brand new car and have a lease or loan on it, you may have heard of gap insurance. Gap insurance can help protect you should you total the car, especially if it is new. There are some restrictions on what is and what is not covered and on any payouts from the insurance company should you have to use your gap insurance.
Read on to find out how gap insurance works, especially if you are in line for a payout.
What is Gap Insurance?
With a standard auto insurance policy, your collision and comprehensive coverage are used to pay you the actual cash value of your car should you total it. Actual cash value, or ACV, is an important concept to understand when you are considering gap insurance.
The problem with only having collision and comprehensive coverage comes into play if you total your car and the actual cash value, as determined by the insurance company, is less than the amount you owe on the lease or loan.
And this situation is not uncommon as brand new vehicles lose a lot of value as soon as you drive the car off the lot. If you total it the day after buying it, you could be out thousands.
Gap insurance can help in this situation where the ACV (including depreciation) is less than what you owe. Without gap insurance you will be forced to continue to pay for a car that you can’t drive. Gap insurance will cover the payout for the difference between ACV and the amount you owe.
What is Covered and Not Covered with Gap Insurance?
Gap insurance is very narrow. It only pays when the car is determined to be totaled and there is a difference in the car’s value and the amount you owe. That’s it.
It’s important to understand what gap insurance won’t pay for:
- Normal repairs
- Injuries or damages
- Lost wages
- Rental car
- Extended warranty coverage
- Collision or comprehensive deductibles
How Long Does It Take for Gap Insurance to Pay Out?
If you are eligible for a payout from a gap insurance policy, you can expect to wait anywhere from about 30 to 45 days after you file your claim. Of course, in complex cases this may take longer. In addition, in some states regulations may also slow things down.
Will I Receive a Payout Directly?
Typically, a gap insurance policy payout does not go to the individual but directly to the auto loan lender or leasing company. This is because the money is owed to the company and not you personally. This money will payoff your debt and free you up to be able to buy or lease another vehicle as soon as possible.
Gap insurance is not stand-alone insurance. It is used in conjunction with your regular collision and comprehensive coverages when you total a vehicle. The best way to know if it is worth purchasing gap insurance is to shop around. InsuranceWins can connect you with well-known auto insurance companies that provide gap insurance so you can decide if it’s worth purchasing a policy for yourself.
