3 Tips for Buying Gap Insurance

Gap insurance protects you in case your insurance company reimburses you for less than you lost in an auto accident. For example, if you purchased your car for $28,000, but it is only insured for $23,000, then you may not be able to replace the car if it is totaled in an accident. This is a very basic model, but it is the basis for all gap insurance. You want to make sure you can replace your car with another comparable asset through your insurance payment. Gap insurance covers the "gap" between the insured value and the actual cost to replace the car.

#1 Make Sure You Aren't Already Covered

Many people do not know they already have gap insurance. Before going to purchase a new policy, speak with your insurer about the possibility. You can check your policy yourself, but many people miss the coverage when checking their policy. Since the insurance is standard with a number of companies, you may have it without even realizing you elected the coverage. Electing a second line of coverage for gap insurance may even be against the law in your state. This could render your existing auto policy ineffective. Make sure you are only covering something you have not already purchased insurance for to protect yourself from this concern.

#2 Ask Your Dealer Directly

Auto dealers often offer gap policies directly. This can be useful if you intend on replacing a lost vehicle with an identical of its type. For example, if you wreck a Honda CRV and want to purchase another Honda CRV, you can go right back to the dealer and have their own gap insurance coverage to purchase the new car. Dealers do not always offer the least expensive coverage, but they often value the vehicle much higher than the insurance company itself. This is because the dealer has an incentive to value its own commodities much higher than an auto insurance company does. You will find you are covered with much higher limits through a dealer in most cases than if you use your insurance company alone for this protection.

#3 Check State Regulations

Your state is directly involved in the oversight and regulation of gap insurance on your vehicle. The state plays a role in preventing insurance fraud. It is fraudulent to work with your insurance company or dealer to get gap coverage beyond the actual value of your vehicle. If you wreck the vehicle in this instance, you may end up being able to afford a better, nicer car than the one you wrecked. This is a problem for insurance regulators whose job is to make sure insurance is functioning to replace lost items. If it becomes profitable to crash and replace a car, then insurance is not actually functioning. Depending on the laws in your state, you may be limited to the amount of coverage you can elect, where you can elect it, and how you can file the claim. While having gap coverage is important, abusing it can lead to criminal charges. 

 

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