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Must gap insurance be offered?


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Question: Are car insurance companies required to offer gap insurance if you’re financing a new car? A friend had a new car totaled in a hit-and-run. She was given only 15 days to pay the balance of the car loan left after collision paid the vehicle’s value.  If she had been told about gap to buy it, it would have made a big difference.

Answer: Car insurance companies are not required to offer gap insurance. In fact, not all car insurance providers even sell gap insurance. 

Some car insurance companies instead sell similar loan/lease coverage, and other auto insurers don’t sell any type of coverage that will help “fill the gap” by paying the balance due on a car when it’s totaled and more is owed on the vehicle loan or lease than what the vehicle is actually worth.

Coverages that are and are not mandated to be offered

Car insurance companies are required to offer at least state-minimum coverages.

That certainly will include some amount of liability for property damage and some way to pay for injuries sustained in an accident. Some states require that drivers buy uninsured motorist coverage to pay medical bills if they are hit by an uncovered driver. A few require uninsured motorist coverage for property damage.

Some states that don’t require drivers to buy uninsured and/or underinsured motorist do require that the coverage at least be offered, allowing the coverage to be waived in writing. 

No matter where you live, coverages that protect your car -- comprehensive and collision -- aren’t required to be offered by car insurance companies.

Nevertheless, many car insurance carriers set up internal systems so that if a driver discloses a vehicle is financed or leased, the quote -- and, thus, policy if purchased -- will include collision and comprehensive coverage. 

This is done because car insurance companies know that lienholders normally require comprehensive and collision on the vehicle to protect it and are trying to assure that the customer obtains the correct coverage.

What car insurance companies don’t know is if you owe more on your financed vehicle than what it’s worth. 

Car insurance providers don’t ask how much you put down on a car, how much is owed on your vehicle or other personal information of this nature that would assess if you need gap insurance to cover any negative equity (amount you owe to the lienholder that is more than the vehicle is worth) you may have in your car.

If you have a car loan or lease, it’s up to you to assess if optional coverage like gap insurance is needed in your specific situation.

Know what coverages do and what fits your needs

Although car insurance companies aren’t mandated to offer or sell you gap insurance, some financing and lease contracts may require the coverage.  In fact, some leasing companies include the coverage (and cost) in the lease of the vehicle. It's also available from many banks that finance cars.

And, while I agree with you that it would have been better if your friend knew about gap insurance and had purchased it, car insurance companies just aren’t able to ascertain every person's needs through just a quoting form.

This is why it’s up to you as a consumer to do your own research before you comparison shop for a car insurance policy.  Ultimately it’s each car owner’s duty to know what each type of car insurance coverage does and if it would be beneficial to carry as part of the policy.  If you need help determining what fits your needs, contact an auto agent that can guide you and answer any questions you have on car insurance coverages.

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