If owning cars is the best way of solving transportation problems, it is equally bad in terms of investment, especially when your car meets with an accident and gets totaled. Imagine the car that you bought a few years ago at the cost of $20,000 has totaled, and the insurance company pays only about $12,000 while your car loan balance is still around $15,000. In such situations, Gap insurance works best to help you to pay the difference.

What is Gap Insurance?

Gap Insurance is that special vehicle insurance designed to cover the difference between your car loan amount and what you could claim from the insurance company in the eventuality of totaling your car. Also known as upside-down insurance or lease/loan gap coverage, the Gap insurance does that only one job – cover the difference when there is a gap between what insurance company pays and what you have to pay to the bank towards your car loan.

Conventionally, the Gap insurance Canada is sold by the auto dealers at the time of your car purchase – be it a new car or a used one. The dealers usually take up the license to sell Gap Insurance as it gives them additional revenue. In most cases, they sell the Gap Insurance at a single premium that costs you somewhere between $300 to $700.

How Gap Insurance Originated?

You would already know that auto insurance covers the car repair expenses or losses incurred in a car accident in a way that you do not make any losses or profit from that incident. When your regular auto insurance is not sufficient, you could even go for Extended Car Warranty Canada and Used Car Warranty Canada. As your car starts depreciating over time due to regular wear and tear, your car’s value comes down; however, the depreciation is not covered by the auto insurance. This created a need for Gap Insurance.

Who Needs Gap Insurance?

Many people think that Gap Insurance is just another way of making money for the auto dealers, and avoid buying it. It need not always be true; at the same time, not every car purchase requires a Gap Insurance.

If you are financing your new car on your own without a car loan, then there is no question of the gap or difference at the time total. Hence, you wouldn’t need a Gap Insurance; but, it’s an ideal but not common situation. When your car purchase is financed by a bank, you would want your car to be fully covered by the auto insurance and the depreciation by the Gap Insurance.

Many insurance companies offer gap insurance coverage as an additional or optional feature along with auto insurance. But, if it is not included, check with other auto insurance companies or purchase a Gap Insurance separately because you wouldn’t want to be left with a great financial loss if your car totals.