How does gap insurance work on a used car?

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Here's what you need to know...
  • Gap insurance works essentially the same as permanent insurance except it is only good for 1-28 days
  • Gap or temporary insurance is meant to be a transition type insurance while you are looking for more permanent insurance
  • Consider the amount of coverage you need and the deductibles and state requirements before purchasing gap insurance

If you are considering purchasing a used car shortly, you may want to consider purchasing gap insurance. Gap insurance is not meant to be a permanent insurance. It is insurance that only covers your car for 1-28 days.

However, it can be a good starter insurance when you are either changing policies or are in the market for a used car.

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What is Gap insurance?

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Gap insurance is sometimes referred to as temporary insurance. That’s because it is temporary and is not permanent insurance. It is a good interim type of insurance that can cover your car for a brief period and ensure that you have car insurance while you are shopping around for a better insurance. But one thing you need to understand is that there are limits on what gap insurance will cover. It will only cover the difference between what you owe on a car and the value of the car according to the insurance company. See this Fox News story to learn more about this caveat.

According to Investopedia, the coverage area that you get your insurance to cover is very important. Some temporary insurance may only cover a certain geographical area, so you should always read the fine print to determine how far the coverage goes that you are purchasing. Temporary insurance is not as likely to cover as much on the liabilities or bodily injury amounts either.

Temporary insurance is often referred to as a “cover note.” This is because it covers a specific period, a specific vehicle, and a specific set of circumstances. It is also only meant to cover your car until such time that you can secure more permanent insurance. Do not rely on any temporary or gap insurance to cover you for longer than a period of 28 days.

When Buying a Used Car

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When you are buying a used car, temporary or gap insurance can fill a temporary void when you do not yet have insurance on the car. However, you will need to find more permanent insurance as soon as possible. Gap insurance covers any car that you choose to list on the policy, so used cars and new cars alike can be covered by this temporary policy.

What to Look for with Gap Insurance

If you are not yet sure what type of permanent insurance you need for your used car, you can shop around and compare temporary types of insurance. When trying to locate gap insurance to cover a used car, try to find insurance that will at least give you the following coverage:

  • The minimum liability and personal injury limits in your state  Even though you are only going to have the temporary insurance for a short period, it pays to shop around a bit to find the best coverage. This is because you do not know when or where an accident could occur.

    If you do have an accident, all that will matter to you then is the amount of coverage you have to cover the accident. If injuries are involved, such coverage, though temporary, can still shield you from a legal situation such as a lawsuit or other legal actions. It can also guarantee that your vehicle will be repaired if you damage it.

  • Coverage for uninsured and underinsured motorists One of the risks of driving involves other drivers’ failure to carry proper insurance amounts. By carrying uninsured and underinsured motorists insurance, it gives you the peace of mind that your injuries and damage will be taken care of, even if the other person’s insurance does not pay for it.
  • Property damage insurance – To protect your used car from damage that cannot be repaired, you need to carry property damage insurance. This is usually referred to as “collision coverage” and is available even with a gap insurance policy. You should inquire about this when you are shopping for insurance and make sure you understand that exact situations that it will cover and how much.
  • Comprehensive (if you wish to cover theft or other factors)  Comprehensive insurance ensures that your vehicle will be repaired even if the factors causing the damage are not due to an accident. Things such as floods, tornadoes, fire, or theft are good examples of factors that can all damage your vehicles.

    However, if you are not covered by comprehensive insurance, in most cases, you will not be covered for these factors. There is not a lot of difference between temporary insurance and permanent insurance when it comes to comprehensive coverage. But the key is to check into the company and policy you are considering and see what they are offering.

  • Other options that you want on your policy  You may also be interested in other additional riders or options, such as roadside assistance, additional coverage for property damage, or medical coverage. None of these options is automatically covered in a temporary policy. Ask your online agent if they can be added to your gap insurance before agreeing to purchase the policy.

How Gap Insurance Protects You

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Let’s say you were looking for a car, and you have traded your old car into the dealer. Remember that car insurance follows the car, not the driver. So, once you have turned in your old car, you are now without any insurance.

Let’s say you drive your new (used) car home that you purchase and, on the way home, you hit a tree, causing severe damage to the mainframe of your vehicle. Now you are going to be out-of-pocket expenses to pay for the damages. Think how upset you would be if you wrecked your car on the way home, without any way to pay for the costs!

Now, this may be unlikely to happen, but it is possible! Why take the risk? You should always remember the golden rule of insurance: “Never be without it, never let it lapse, and never have a gap in coverage.” That one week or day that you are not covered could be the very day that you have an accident.

Deductibles and Out-of-pocket Expenses

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Consumer Reports has an article that talks about out-of-pocket expense versus a deductible in health insurance. This article is insightful to car insurance shoppers also because car insurance works the same way. Car insurance is meant to cover the resulting damage of an accident, whether it be a liability, personal injury, or property damage. You choose a deductible, such as $500, $1000, or $5000. Once you meet that deductible, the insurance company will pay the rest.

It is important to understand that you should choose a deductible amount for gap insurance as well so that you will know how much you must pay in damages before your insurance will take effect.

While you are shopping online and comparing insurance plans, ask your online specialist to advise you on how much deductible you should put on your temporary insurance plan. Even though you have a used car, it is important to make sure it will be totally covered in the event of an accident. Likewise, you do not want to have to pay too much up front before your insurance pays for damages.

Treat Gap Insurance Like Permanent Insurance

In short, even though Gap insurance is only meant to serve as temporary insurance, you still need to cover your used car for as much as you would want to cover it with your more permanent insurance. Check and compare rates when getting gap insurance and decide how much you will need until you can put more permanent insurance in place.

Shop Around Before You Buy

Remember that there are very real limits on what gap insurance will cover. The amount it will cover is up to the insurance company. Also, gap insurance is not meant to last forever. It is only meant as a temporary fix while you shop for a better, more permanent insurance. Only use gap insurance to ensure that you have some coverage as you are in the process of replacing your current insurance or when you purchase a used car. Shop our site and compare and ask the online representatives to help you locate the best insurance for your needs.

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