What Is Gap Insurance for Homes? Why You Might Need It

If you have a mortgage or a loan on your home, you probably have a home insurance policy that covers the cost of repairing or rebuilding your property in case of a disaster.

gap insurance for homes
gap insurance for homes| INVESTOPEDIA

But what if the amount you owe on your home is more than the amount your home is worth? This is where gap insurance for homes comes in.

Gap insurance is a type of supplemental coverage that pays the difference between the actual cash value of your home and the amount you owe on your mortgage or loan in case of a total loss.

This way, you can avoid being stuck with a debt that exceeds the value of your asset.

In this article, we will explain what gap insurance for homes is, how it works, and how to get it.

Gap Insurance for Homes: Definition and Coverage

Gap insurance for homes is also known as mortgage shortfall insurance or loan payoff insurance.

It is designed to protect homeowners who are upside down on their mortgages or loans, meaning they owe more than their homes are worth.

This can happen due to factors such as depreciation, market fluctuations, or negative equity.

Gap insurance for homes covers the gap between the actual cash value of your home and the outstanding balance on your mortgage or loan in the event of a total loss.

For example, if your home is worth $200,000 and you owe $250,000 on your mortgage, and your home is destroyed by a fire, your regular home insurance policy will pay you $200,000 based on the actual cash value of your home.

However, you will still owe $50,000 to your lender. This is where gap insurance for homes comes in.

It will pay you the remaining $50,000 so that you can pay off your debt and avoid foreclosure.

Gap insurance for homes can cover various types of losses, such as natural disasters, theft, or fire.

However, it does not cover losses due to negligence, fraud, or intentional damage.

Gap insurance for homes also has some limitations and exclusions, such as deductibles, caps, and waiting periods.

Therefore, it is important to read the policy terms and conditions carefully before purchasing gap insurance for homes.

Some of the benefits of gap insurance for homes are:

1.It can provide peace of mind and financial security in case of a catastrophic loss.

2.Prevents foreclosure and protect your credit score

3.It can be affordable and easy to obtain.

Some of the drawbacks of gap insurance for homes are:

1.It may not be necessary if you have enough equity in your home or if you plan to sell your home soon.
2.May not cover the full amount of the gap if there are deductibles or caps involved.
3.It may not be available from all providers or for all types of mortgages or loans.

How to Get Gap Insurance for Homes

If you are interested in getting gap insurance for homes, you will need to find a reputable provider that offers this type of coverage.

Image of home insuring
Insurance Home Policy [PHOTO COURTESY OF JUBILEE]
You can do this by:

– Searching online for gap insurance providers in your area.
– Asking your lender, agent, or broker for recommendations.
– Comparing quotes from different providers to find the best deal.

Before purchasing gap insurance for homes, you should review the policy terms and conditions carefully and make sure you understand what is covered and what is not.

You should also check the provider’s reputation, customer service, and claims process.

To save money on gap insurance for homes, you can try:

– Shopping around and comparing quotes from different providers.
– Bundling gap insurance with other policies from the same provider.
– Increasing the deductible amount on your policy.
– Paying your premium annually instead of monthly.

However, you should not compromise on the quality or adequacy of your coverage just to save a few bucks.

You should always consult with a licensed agent or broker before purchasing gap insurance for homes to make sure you get the right policy for your needs.

Conclusion

Gap insurance for homes is a type of supplemental coverage that pays the difference between the actual cash value of your home and the amount you owe on your mortgage or loan in case of a total loss.

It can protect you from being stuck with a debt that exceeds the value of your asset and prevent foreclosure.

However, gap insurance for homes also has some limitations and exclusions that you should be aware of before purchasing it.

To get gap insurance for homes, you will need to find a reputable provider that offers this type of coverage and compare quotes from different providers to find the best deal.

You should also review the policy terms and conditions carefully and consult with a licensed agent or broker before purchasing gap insurance for homes.

 

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