What is Gap Insurance?

So many people that I talk too or that my team talks too do not know exactly what Gap insurance is. Gap insurance is real simple. Let's say that you buy a vehicle and you drive off the lot owing $25,000. And let's say that you are involved in an accident and the car is totalled. The insurance company may value your vehicle at $21,000 So the insurance company is willing to pay only $21,000 on a car that you owe $25,000 on. That leaves you owing the $4000 difference. No one wants to pay money for something that they do not have so they invented Gap insurance. Gap insurance pays the difference between what you owe and what the insurance company will pay on your vehicle.

My Dad used to call insurance a necessary evil and I quess that is somewhat true. Insurance is necessary to protect you financially and yet it is evil for the mere fact that things must operate that way and extort protection money from us in the first place.

Well, atleast you will know what Gap insurance is for the next time it is offered to you.