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We are often asked about GAP insurance: what is it, what does it cover, do I need it? GAP insurance is a product that covers you for the difference between what your insurance company may pay the bank in the event of a total loss and the balance you owe the bank on a car loan. For example, if you owe the bank $20,000.00 and you total your car, if the insurance company pays $17,000.00 based on the retail value of your car, you are “upside down” by $3,000.00. Even if you pay your deductible of $500.00, you still need to pay $2,500.00 for the deficiency or the “GAP” between what the insurance company has agreed to pay and what you owe. Scenarios like this are quite common these days and in many cases, we see deficiency amounts much higher due to people financing for longer terms, as well as the depreciation of vehicles, etc.
If you had GAP insurance in this instance, the bank would file the claim, the insurance company would pay the additional $2,500.00 to the bank, and you would be all set, ready to go shop for another car! If you didn’t have GAP insurance, you would need to pay the deficiency or look into other options such as a personal loan if you didn’t have the cash on hand to cover it. Or if you did have the cash, that may have been the money you needed for a down payment on the next vehicle. GAP insurance can really come in handy these days, so when you buy your next car, consider the possibility of what could happen if your car is totaled. At Rhinebeck Bank, GAP insurance currently costs only $135.00 and is a one time fee at the beginning of the loan - it could save you thousands!
SVP, Consumer Lending