Gap insurance is a type of insurance that is supposed to cover the gap between what you owe through a lease or loan and what the insurance company is required to pay through the insurance plan. Gap is an acronym  of ‘guaranteed auto protection’.

For example, when your car is destroyed in a total loss, gap insurance will help you cover the gap between your car’s worth and what you still owe.

If you want to avail this service then you will be required to add a gap insurance plan to your car insurance policy. This coverage plan will only be allowed to the real car holder. However, it is optional for you to get it but is surely beneficial as it will help you pay off your auto loan.

Companies that provide gap insurance plans are supposed to cover broad and guaranteed issues along with the availability of affordable packages such as NGL gap insurance. For more information, checkout NGLIC gap insurance options.

How Does Gap Insurance Work?

Once you start to use your car, it starts to depreciate. But if you have financed your car with an auto loan or gap insurance, it will not lose its value.

This means if the car gets destroyed by getting into an accident and is unable to get repaired, the car insurance company will be required to pay the ACV known as the actual cash value. When the ACV is lesser than the amount of the loan, you will still owe money to the creditor for a car that no longer belongs to you. This is also known as ‘negative equity’.

Here’s an example to make it more easy for you to understand. Say you bought a car for $30,000. In an accident, the car gets totaled and you file a claim with your insurance provider through the policy’s collision insurance. You find out that the car’s value is $22,000. Meanwhile, you owe your lender up to $26,000, which means you have a gap of $4,000 to cover. If you have gap insurance, they will help you get the remaining $4,000.  

How To Get A Gap Insurance Plan?

After getting a car, you will be able to get gap insurance depending on the model of your car. Some car dealers do not offer a gap insurance plan so you will not be able to get insurance from your lender. 

However, a lot of insurance companies offer a gap insurance plan with their car insurance policy which is up to you to choose ultimately.

Getting a gap insurance plan from an insurance company is considered less costly than getting it from your car dealer. 

Some requirements of insurance companies before you make a purchase are:

  1. The vehicle should be brand new
  2. You should be the original owner of the vehicle
  3. You should have original documents of the lease of your vehicle
  4. The vehicle should not be older than 2 to 3 model years

Although all insurance companies have different policies, the above-mentioned ones are the basic requirements to buy a gap insurance plan.

Is Getting A Gap Insurance Worth It?

Consider getting a gap insurance plan if you made a downpayment of less than 20 percent and if your auto loan is 60 months or longer.