Did you take out a loan in order to purchase your vehicle?  If you are like most people that buy new or used vehicles, you likely didn’t have the money available in order to make your purchase.  Therefore, you borrowed money from a financial institution in order to make the purchase.  By doing so, you likely agreed to carry “full coverage” on your vehicle.  This is because lending institutions will require full coverage in order to make sure their investment is protected in case an accident should occur.  While this may protect you and the lending institution to a certain extent, it is not always enough to keep you protected as much as you might have thought.

When Full Coverage is Not Enough
What many people don’t realize when they purchase a car with a loan is that there often comes a time during the lifetime of the loan that the value of the car is less than the amount of the loan.  In other words, you may still owe more on the car than it is currently valued at being worth.  Therefore, if you get in an accident and your car is totaled or if the car is stolen, your insurance company will only pay you for what the car is worth and you will be stuck holding the rest of the car loan bill.

Protecting Your Investment with Gap Insurance
In order to make certain you are not left paying on a vehicle that you no longer have, you might want to consider purchasing gap insurance.  With gap insurance, the insurance company will repay the entire amount of the loan if your vehicle becomes stolen or damaged beyond repair.  Therefore, if you still owe $10,000 and the car is only valued at $6,000, the insurance company will pay the full $10,000 in order to pay off what you still owe.  In some cases, gap insurance coverage will also provide you with extra cash beyond the pay off amount that you can use as a down payment on a new car.

Where to Buy Gap Insurance
Depending upon the lending institution, you may be able to purchase your gap insurance directly from them when you take out a loan.  For the institution, having you take out gap insurance is valuable to them because it also guarantees they will receive their full payment if something should happen to your vehicle.  If your lending institution does not provide gap insurance coverage, you can purchase it through your insurance company and have it added to your policy.  You will have to pay extra each month for the coverage, but the coverage is generally quite minimal.

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