1. What is Car Insurance Gap Coverage?

Gap coverage is an optional car insurance that pays the difference between what you owe on your car loan and the car's actual cash value (ACV) if it's totaled or stolen. This coverage is particularly important for new cars that depreciate quickly.

2. How Does Gap Coverage Work?

The gap coverage calculation uses a simple formula:

Where:

• Loan Balance — The remaining amount you owe on your car loan
• ACV — Actual Cash Value, what your insurance company determines your car was worth at the time of loss

Explanation: If your loan balance is higher than your car's actual value, gap coverage pays the difference to prevent you from owing money on a car you no longer have.

3. Importance of Gap Coverage

Details: New cars can lose 20-30% of their value in the first year. Without gap coverage, you could owe thousands more than your insurance payout if your car is totaled in an accident.

4. Using the Calculator

Tips: Enter your current auto loan balance and your car's estimated actual cash value (check with your insurance company or use valuation tools). The calculator will show how much gap coverage you might need.

5. Frequently Asked Questions (FAQ)

Q1: Who needs gap coverage?
A: Anyone who owes more on their car loan than the car's current value, especially those with new cars, long loan terms, or small down payments.

Q2: How much does gap coverage cost?
A: Typically $20-$40 per year when added to your auto insurance policy, much less than buying from a dealership.

Q3: When should I drop gap coverage?
A: When your loan balance falls below your car's actual value, or when you've paid off your loan completely.

Q4: Does gap coverage cover my deductible?
A: Standard gap coverage doesn't cover deductibles, but some policies offer "loan/lease payoff" coverage that may include it.

Q5: Is gap coverage worth it for leased vehicles?
A: Yes, most leasing companies require gap coverage, and it's essential since you're responsible for the vehicle's value.