Have you leased a car and are getting sleepless nights about how you are going to pay off the leasing company in case of an accident. The car might still belong to the manufacturer but you will be accountable for putting it back. It's a scary prospect that even after your insurance company is done paying the damages you still might be in debt. This is why you need to know about gap insurance. Gap insurance would be useful is in multiple situations- say when you are leasing a car or when you have paid a small fraction of the down payment etc.
That said and done, it might be useful for you to understand the nature of gap insurance. Gap insurance basically does for you what normal insurance doesn't. It helps bridge the gap between what the insurance company gives you and what you owe to your financier, if you are in an accident or your car suffers some damage. The aforementioned gap arises because the insurance company takes into account the depreciation in value of your car and assessment of the damage while the finance company would expect you to pay the full amount irrespective of these things. That is why it is crucial for you to have gap insurance.
In another scenario, if you didn't pay a huge sum as a down payment and the car suffers damage or is stolen in the first few years then the amount the insurance company will pay you would be only a fraction of what you are going to owe the dealer. Again, gap insurance will come to your aid.
In this day and age, it important for every driver to have gap insurance coverage. Most leasing contracts have gap insurance covers built into them or make it mandatory for you to procure gap insurance. In the latter case you will have to look around and shop for a coverage that best suits your needs. If the coverage is already included in your contract go over it and check out the conditions and requirements thoroughly. If your vehicle is financed then you might or might not need a gap insurance depending on your coverage. If the existing policy is designed to cover the entire financed amount then you can do without gap coverage.
Though most people buy gap insurance while signing/ chalking out a lease, some insurance companies offer it to you at anytime in the term of lease. Also when buying gap insurance make sure that you are not flouting any terms of your existing contract. Read the terms and conditions of your gap insurance carefully. Many gap insurance policies require you to have an existing collision and comprehensive coverage.
Even if your car is damaged or stolen, some companies might require to make payments on your vehicle till the amount from the gap insurance comes through. Make sure you are aware of such terms and conditions.
Planning ahead is always a wise thing to do. While working out the details of a car loan or lease make sure you ask the dealer about gap insurance. Prevention is always better than cure!
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