What is “Gap Insurance”?

Gap Insurance is normally purchased at the time of a new car purchase when financed through a lending institution. The reason this is offered is due to the instant depreciation of the new vehichle the moment it is driven off the new car lot.

For example, a new car purchased at the sales price of $35,000 is typically depreciated by at least 20% within’ the first three months of ownership depending on the make and model. Since most auto insurance policies only cover the Actual Cash Value of an auto, the outstanding difference between the new car price and the depreciated car price can be a significant “gap”.

For this reason “Gap Insurance” is purchased to cover this difference between the amount paid and the depreciated value. Is it worth it? For some it may be worth the additional cost and for others possibly not. This strictly depends on the numbers and an individual’s risk tolerance.

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