Do you need extra protection if you have full coverage and still owe money for a car loan or lease? The answer is yes. Supplemental insurance is not the same as full coverage, but it can be part of a comprehensive plan. Full coverage is usually defined as the combination of the minimum insurance required by the state, comprehensive and collision insurance, plus any emergency coverage that may be required by a lender or landlord. Gap insurance applies when your vehicle is stolen or destroyed in an accident.
When you file a claim that qualifies, your comprehensive or collision coverage will pay the actual cash value (ACV) of your vehicle, minus the deductible. In this case, your gap insurance could cover the difference between the ACV of your vehicle and the remaining balance of your loan or lease. If your gap insurance has a limit, it may only cover part of your outstanding balance if you owe more for the car than it's worth. Keep in mind that gap insurance may not cover additional charges related to your loan, such as financial charges or excessive mileage fees.
If your vehicle isn't financed, there's no need to buy gap insurance. If you finance your car, gap insurance may be a good idea, but it depends on how much you drive and how quickly your car depreciates. If the car you financed is totaled, gap insurance can cover the remaining amount of your loan if you owe more than what the car is worth. If your vehicle is declared a total loss or if it's stolen and not recovered, gap coverage works like this.
Gap insurance is an optional extra coverage that can help certain drivers bridge the “gap” between the financed amount owed for their car and its actual cash value (ACV) in the event of a covered incident in which their car is declared a total loss. Contrary to popular belief, uninsured coverage doesn't mean that your insurer will pay you back what you originally paid for your car. Your insurer will pay for your vehicle if you have collision insurance and are at fault for an accident. According to the Insurance Information Institute, many vehicles depreciate 20% or more during their first year of ownership.
Having gap insurance can prevent you from owing money for an unusable vehicle if it's destroyed or stolen. If another driver was at fault, gap insurance can also cover the difference between your insurer's settlement offer and the outstanding loan. For example, if you owe twenty-five thousand dollars on your loan and your car is only worth twenty thousand, without gap insurance, you will receive a payment of twenty thousand dollars. Not all Nationwide member companies are mutual companies and not all Nationwide members are insured by an investment company.
Gap insurance can be useful when buying a new car to cover the difference between its value and what you owe on the loan in case of a total loss. As its name implies, gap insurance is meant to cover the difference or gap between what you owe and the full value of your vehicle. This payment may not cover the entire loan if your car has significantly depreciated.