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How do you know if you need gap insurance?
Is there a calculation that you can use to determine whether you need it? How do lenders decide the cost of it?
Emily Maracle · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
“When determining whether you need
gap insurance
, you should look at your loan amount and the value of your vehicle. Gap insurance provides coverage when you owe more on your loan than the actual cash value of your vehicle.You should consider gap insurance if the difference between the actual cash value of your car and the loan balance would create a financial hardship if you were in an accident. If you don’t have an emergency fund or you couldn’t afford to pay a few thousand dollars out of pocket, gap insurance is a smart move.
Since lending and
car insurance
are based on risk, lenders will determine the cost of gap insurance based on the amount of risk they take on; this can vary depending on the provider. Unlike car insurance, dealerships and lenders usually add a flat rate for gap insurance rather than basing the cost on the driving habits of an individual.If you’re interested in adding gap insurance to your car loan or you want to update your policy, download the
Jerry
app. In just minutes, you can compare quotes from top insurers to get the best rate.”View full answer
- Gregory R.
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