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Most people who finance or lease a vehicle owe more on their car then the vehicle's actual book value. This is especially true if you traded a vehicle in that you still owed money on. Some people will go through this cycle several times until they owe so much on their current vehicle that their payoff is hopelessly higher than the actual value of their current vehicle.
So, if your car is totalled from an accident, from being stolen or some other covered catastrophe your insurance company will only pay the book value to pay off your claim. If you owe more money on the vehicle then they give you there's a "gap" that you must payoff.
In other words, you may end up owing several thousand dollars or more on a vehicle that has been declared a total loss by your insurance company. Once your vehicle is declared a total loss it becomes the property of the insurance company. Gap insurance covers this "gap" or difference so you don't get stuck owing money on a car that you don't have anymore. It's a good thing to have, but you don't want to buy it from the car dealer! They will mark the price of it up $300 to $600 over the actual cost of the coverage!
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