Information on Gap Insurance Eligibility Requirements

GAP insurance covers the difference between the balance on your auto loan and what the vehicle is worth in the event that it is totaled over the course of the loan. In some cases, the GAP coverage may also pay the insurance deductible when the vehicle is totaled. When signing the paperwork for an auto loan or auto lease, ask about GAP insurance, because the dealer may not always provide the option.

Think gap insurance isn't necessary? Consider this: A vehicle bought at $30,000 gets totaled 3 months later, and is only valued at $24,000. That leaves $6,000 on the balance of the loan the borrower is responsible for because even though the car didn't technically belong to them, they were responsible for replacing the vehicle if anything happened to it.

The cost of the policy is typically financed in with the total amount of the loan, therefore making it part of the monthly payment. Without this coverage, if a leased or loaned car is totaled while worth less than the balance on the loan, then the borrower is still responsible for making monthly payments on the loan until the balance is paid off. This coverage is particularly beneficial for people who do not put a large amount of money down on the vehicle. Though GAP insurance is a good thing to have to ensure the debt obligation is fulfilled if something happens to the vehicle, there are a few requirements to consider.

Eligibility Requirements

Though each GAP insurer will have different requirements, the policy typically requires the vehicle to be no more than two years old. The vehicle must be newly leased or purchased to qualify, and it must carry full comprehensive and collision coverage. If the vehicle does not have a lien holder, it will not qualify for GAP insurance. If leasing a vehicle, check the agreement because it may already include the GAP insurance and eliminate the need to purchase separate coverage.

Getting GAP Insurance Coverage

When the vehicle is leased or purchased, the dealer or lender will typically provide the option to include the GAP coverage at the time the documentation is signed. The total amount of money paid for the policy will be based on the vehicle, and those who are interested should speak to an insurance representative or their dealer representative to learn more about the specifics of the policy as it pertains to their vehicle. If shopping for coverage is required, many car insurance companies also offer gap coverage.

Using the GAP Insurance Policy

If the vehicle is involved in an accident or is damaged through acts of God or vandalism, the insurance company will first handle the claim. After the insurance company has determined the car is totaled, they will provide all the necessary information to the owner so as to be able to activate the GAP insurance claim. Once the GAP insurance company has been able to verify the vehicle's condition through the insurance company and all the documentation on the claim, they will pay the difference to the lender.

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