For many people in the USA buying a car impossible without a car loan. This is because cars can cost tens of thousands of dollars, and it can take years to accumulate money to pay for cash.
It is especially important for drivers with a car loan to make sure they are eligible auto insurance… One of the key types of car insurance what may be required is called break insurance. Many lenders require motorists to maintain gap coverage, but even when this type of insurance is not required, it might be a good idea to buy one anyway.
Gap insurance can protect against huge problems in the event of a total loss.
When drivers insure their cars auto insurance company usually pays for car repairs when something goes wrong. But there are circumstances when a car cannot be repaired because it is too badly damaged or because the cost of repairs may exceed the amount the car costs. In other cases, cars are stolen, which means that the insurer will pay for the car if it is not returned.
When insurance companies pay compensation for a stolen vehicle or for a vehicle that has been declared completely lost, the insurer estimates the fair market value of the vehicle. And this is the amount that the policyholder receives. The problem is that this fair market value is usually, if not always, less than the amount paid by the policyholder for the car. This is because cars tend to decline over time, especially if they are newer models when purchased.
If the driver is only compensated for the fair market value of the vehicle, this amount could be much lower than the amount the motorist owes on his car loan. For example, a driver may only receive $ 10,000 in compensation for a vehicle that has been declared completely lost, but may still have an outstanding loan balance of $ 15,000.
This problem is especially common when motorists borrow a lot of money to buy new cars, make small down payments on their cars, or lengthen the maturity of a loan.
Unfortunately, if the insurer pays the driver less than the amount of his car loan, the lender still expects to receive the full amount of the loan. This can result in the driver being left without a car and with insufficient insurance to pay off the entire loan. In this case, the motorist may be personally responsible for paying the loan balance for the car he no longer owns.
This is where gap insurance comes in. It offsets this balance, so the driver does not have to cover it out of his pocket. This can prevent serious financial damage to the driver, and it also provides lender protection – which is why most mortgage providers require it.
If you took out a car loan, be sure to check and make sure the gap insurance is included in your existing auto insurance policy. If this is not the case, consider contacting an insurance agent or logging into online accounts to add this coverage and get the necessary protection it offers.