Gap Insurance

• Gap insurance is a type of coverage that you can buy directly from your auto lender. This type of insurance coverage helps you avoid going into an upside down position. Going upside down on a loan is different from simply owing money on the loan. When you find yourself in an upside down position, you actually owe more than what you will be reimbursed from the insurance company. Insurance companies only pay the current market value for the car. If your car depreciates in value quickly, you might owe much more than what your car is worth. If you were to total the car, you would still have the remaining loan balance that existed in excess of the value of the car. Gap insurance pays the difference between what you owe and what the car insurance company pays you for the car.
  
  

Requirements

• When you are shopping for a new car, the sales representative might try to convince you that gap insurance is required. Many auto dealers will simply figure this into the payment when they are calculating your payment for you. While they might want you to believe that you have to buy it, no such laws exist. You can choose to bypass this type of insurance if you choose.
  
  

Down Payment

• The amount of down payment that you make on your car will have an effect on whether you need gap coverage. If you do not put any down payment on your car, you should consider getting gap coverage. If you put a large down payment on the car instead, you can potentially avoid gap coverage. Coming up with a large down payment reduces the amount of money that you have to borrow. In that case, you may not be upside down on the loan value if you wreck your car.
  
  

Value

• Even though it is not required, gap coverage is generally considered to be a solid value for the cost involved. You can generally get gap coverage for only a few extra dollars per month. This amount is added to your car payment which means that you do not have to worry about making a separate payment. If you are in an accident, you do not have to go through any complicated claims processes either. Since this coverage can potentially save you thousands of dollars if you are in a wreck, most people would benefit from it.