Investopedia

Continue to Site »

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. 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 ...

  6. 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.

  7. New Year Planning For Business Owners

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

  8. Reasons Renting Is Better Than Buying

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

  9. 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.

  10. The Hidden Costs Of Wedding Insurance

    Weddings don't always go smoothly. Here's how you can protect yourself from things backfiring.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Winner's Curse

    Because of incomplete information, emotions or any other number of factors regarding the item being auctioned, bidders can have a difficult time determining the item's intrinsic value. As a result, the largest overestimation of an item's value ends up winning the auction.

  2. Glocalization

    A combination of the words "globalization" and "localization" used to describe a product or service that is developed and distributed globally, but is also fashioned to accommodate the user or consumer in a local market.

  3. Disaster Loss

    A special type of tax-deductible loss, similar to a casualty loss, where a loss has been incurred by taxpayers who reside in an area that has been designated as a federal disaster area by the President.

  4. Fool In The Shower

    The notion that changes or policies designed to alter the course of the economy should be done slowly, rather than all at once.

  5. Pattern Day Trader

    An SEC designation for traders who trade the same security four or more times per day (buys and sells) over a five-day period, and for whom same-day trades make up at least 6% of their activity for that period.

  6. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.
Trading Center