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Gap and Umbrella Policies

A. Gap Coverage

Under the terms of a loan or lease on an automobile, at the time of total loss, there is often a difference between the amount your insurer will pay as actual cash value (under comprehensive or collision coverage) and the amount which you owe to the entity that financed or leased the vehicle (such as a bank or auto dealer). This difference, which can be hundreds or even thousands of dollars, is called the "gap amount". Gap coverage pays this amount in the event of a total loss.

Currently, you can purchase a "waiver" of the gap amount directly from the lender or dealer, who in turn has purchased gap insurance to cover the vehicle. Alternatively, some insurers may offer a separate policy or an endorsement to your personal automobile policy to cover this gap amount.

In addition, some lenders and leasing companies" financing contracts state that the amount of settlement by the physical damage insurer (based on actual cash value) will be accepted as full satisfaction of the contract in the case of total loss to the vehicle. In these cases, neither a gap waiver nor policy is necessary, as no "gap" exists.

B. Personal Umbrella Policies

If you have a homeowners or renters policy in addition to an automobile policy, and have sufficient assets you would like to protect, you may consider purchasing a personal umbrella policy. An umbrella policy protects you by providing additional liability coverage against judgments in lawsuits that exceed the protection of your primary (automobile, homeowners or renters) policies, with higher limits of liability insurance, typically of $1 million or more and may also include additional limits of SUM coverage.

In addition to coverage for bodily injury and property damage liability, umbrella policies usually cover additional offenses, such as libel, slander, false arrest, and invasion of privacy. In order to be eligible for an umbrella policy, insurance companies may require you to purchase and maintain certain minimum underlying liability limits on your primary policies.

Note that not all auto insurers may offer this type of policy. You may consider asking your insurer or agent/broker about the availability of this type of policy.