Cheap gap insurance is an inexpensive form of car insurance that will cover the difference between the actual value of the car and any money you owe on the vehicle. Therefore if the vehicle should be totaled in an accident you will not have to take a loss. Think of it as insurance for your car loan.
The purpose of gap insurance is to cover you in the event that you are in an accident of sort. However, it is a special circumstance when gap insurance would kick in. This case is called an upside down loan. It is when you actually owe more money on your car than the car is worth. This is common when you just drive your car for the first time. Your car depreciates greatly once it rolls off the parking lot of the dealership. Now, even if you are paying 0 percent on that car, you owe much more than it is worth. The problem is that if you are involved in an accident, your insurance will only cover what the car is worth. You would then be on the hook for what is left on the loan. This “gap” can be covered if you buy gap insurance. A dealership probably will sell you on this and try to add it in for over $500 into your loan. You can find much better rates by doing some quick searches on the Internet. Gap insurance should not be that expensive, and when you look at the benefits if an accident were to occur, it looks like a viable option. Just remember that buying gap insurance is not required, and usually is just a way to get some extra money out of you.
Gap insurance coverage is only typically used for the first few months of owning a vehicle. Normally a car will depreciate quite quickly over the first year so that the car loan will be more than the car value. Once the amount of the loan is equal to or less than the car value, it is no longer necessary to have GAP insurance.
GAP insurance is recommended if the car you have just bought has a rapid depreciation history, the vehicle is brand new, your current insurance does not cover the gap between the loan and car value or, if the loan is an extended term, zero down loan. Not everyone needs to have this insurance.
A GAP insurance company is an excellent place to begin your search for affordable insurance. Large car insurance companies may include this in full coverage insurance or offer it as a discount if you are already covered through them. The easiest way to find GAP insurance at a good price is to do a search online and collect some quotes. Then compare what is being offered from each company. It is also recommended you speak with your current car insurance provider and the financial institute that has given the loan, as they may have some preferred GAP insurance providers.