Gap Insurance

Filed Under » , ,
Dictionary Says

Definition of 'Gap Insurance'

A type of auto insurance that car owners can buy to protect themselves against losses that can arise when the amount of compensation received from a total loss does not fully cover the amount the insured owes on the vehicle's financing or lease agreement. This situation arises when the balance owed on a car loan is greater than the book value of the vehicle.
Investopedia Says

Investopedia explains 'Gap Insurance'

For example, according to the blue book, John's car is worth $15,000. However, he still owes a total of $20,000 worth of car payments. In the event that John's car is completely written off as a result of an accident or theft, John's car insurance policy will reimburse him with $15,000. Because John owes the car financing company $20,000, however, he will still be $5,000 short, even though he no longer has a car.

If John had purchased gap insurance, the gap insurance policy would cover the $5,000 "gap", or the difference between the money received from reimbursement and the amount still owed on the car.

Articles Of Interest

  1.

    It's Raining Lawsuits: Do You Need An Umbrella Policy?

    This type of insurance protects your assets and future wages against lawsuits. Find out if it might benefit you.

  2. New Wheels: Lease Or Buy?

    These two major ways to obtain a car have very different advantages and drawbacks. Find out which is best for you.

  3. Top Tips For Cheaper, Better Car Insurance

    Accident, theft, vandalism - make sure your coverage will protect you when you need it most.

  4. Life Insurance: Putting A Price On Peace Of Mind

    Would your death leave loved ones financially stranded? Find out how to ease your mind and keep them protected.

  5. 5 Things You Should Know About The New Health Insurance Marketplace

    Here are five things you should know about the new Health Insurance Marketplace (AKA Health Insurance Exchange), which launches on October 1.

  6. What is pay-as-you-drive auto insurance?

    To an extent, auto insurance rates are specifically developed based on individual user information. The criteria traditionally considered when determining auto insurance rates include the driver's ...

  7. Automatic Cancellation Of PMI When You're Underwater On Your Mortgage

    You might be suprised to learn that after reaching certain criteria, your PMI will be automatically cancelled.

  8. New Year Planning For Business Owners

    Make a resolution to start your business off on the right foot in the new year.

  9. Reasons Renting Is Better Than Buying

    Owning a home is much more expensive than renting. Here are the places where the costs differ greatly.

  10. 5 Most Expensive Cities In The U.S. For Car Insurance

    It costs a lot to insure your vehicle in these cities across the U.S.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Network Effect

    A phenomenon whereby a good or service becomes more valuable when more people use it. The internet is a good example...

  2. Racketeering

    Racketeering refers to criminal activity that is performed to benefit an organization such as a crime syndicate. Examples of racketeering activity include...

  3. Lawful Money

    Any form of currency issued by the United States Treasury and not the Federal Reserve System, including gold and silver coins, Treasury notes, and Treasury bonds. Lawful money stands in contrast to fiat money, to which the government assigns value although it has no intrinsic value of its own and is not backed by reserves.

  4. Fast Market Rule

    A rule in the United Kingdom that permits market makers to trade outside quoted ranges, when an exchange determines that market movements are so sharp that quotes cannot be kept current.

  5. Absorption Rate

    The rate at which available homes are sold in a specific real estate market during a given time period.

  6. Yellow Sheets

    A United States bulletin that provides updated bid and ask prices as well as other information on over-the-counter (OTC) corporate bonds...
Trading Center