GAP Insurance is the short form of Guaranteed Asset Protection insurance. Many people define it as car insurance, which typically covers the gap between the vehicle’s market value and the amount of the buyer’s loan when you s/he lost his/her car by accident or theft.
This case appears only when the owed amount of the car loan is greater than the depreciated value. When you finance a used or new car, expenses go down over time, and this call depreciates value.
By purchasing a gap, insurance buyers can protect themself in the face of losses.
Why Do You Need GAP Insurance?
Gap insurance works both with collision and comprehensive policy at a time. If you have collision and comprehensive insurance coverages already would pay for your stolen or totalled vehicle up to your car’s depreciated value.
So at the time of financing or leasing a car, most lenders ask to have GAP insurance.
As reported by the Insurance Information Institute (III), when you get the car out of the lot, it starts to decrease its value very quickly. Statistics say the majority of vehicle price depreciates near 20% in the very first year of financing or leasing.
Now think your owed amount yet more on your loan else lease than depreciate value, and your other insurances are not sufficient to fulfil this gap amount. In this case, GAP insurance will help to pay this gap amount.
So, it’s clear that if you want a car with a loan or lease, you should purchase the GAP coverage. On the other hand, if you aren’t included in this category, you can skip this insurance.
When it is needed?
We think GAP insurance is excellent coverage. So we all should care about it.
In general, the GAP most likely fruitful in the following conditions:
When You Make A Large Loan to Buy a Car: GAP may cover when you make a large amount of car loan that is greater than the car’s value, and your vehicle is stolen or totalled. Totalled? -when the cost of repairs becomes higher than the vehicle’s price, it is formed as totalled.
The declaration of totalled is always dependent on state law and your insurer’s judgment.
When you’re concerned about your vehicle’s depreciation: The faster your car reduces its price, the fewer amounts it will pay following a total loss event, by comparing what you cash for it. Using GAP insurance, you’ll get further back.
When your car is on a long-term lease: When you obtain a long-term contract for your vehicle with a kilometre allowance, the cancellation could quit you except a car with thousands of dollars. To get rid of it, GAP insurance is your last resource.
How it Works?
When your car is totalled, GAP coverage comes to protect you from huge loss. It varies from an insurance agent to an insurance agent. Current GAP insurance policy mainly covers up to 25 per cent over your car’s price. If you own more than your vehicle’s value, you must talk to your usual insurance company to ensure your gap coverage, mainly covering your gap in particular conditions.
When your car totalled simultaneously, you owe more than your auto’s actual price, since officially, your loan agency owns the car before reimbursement. If you’re cannot pay it off. Therefore, it’s seriously a matter of complication and challenging to get another car. In this circumstance, gap insurance is a very productive idea to get a loan on a vehicle.
If you don’t understand yet, how GAP insurance works, let’s say you buy a car for $30,000. You set a $1,000 down payment where your monthly payment is $700. Think, unfortunately, there happened an accident and totalled after five months, then your car insurance considers that five-month-old car’s market price is only $22,000. So still now you pay $4,500 and owe $25,500.
After paying you $22,000 by your car insurance, there remains $3500 ($25,500-$22,000), which has to be paid from your pocket. Isn’t it? In these issues, GAP insurance can save your pocket.
Can You Get GAP Insurance After Buying a Car?
After buying a car, you may get GAP insurance, which depends on your vehicle’s model year. To purchase this insurance, you have to communicate with an insurance agency. You can get it from your car dealer. Sometimes a large number of insurers offer gap coverage inside of necessary car insurance policies.
How to Purchase It?
You purchased a car and yet not attach gap coverage to your policy? Please don’t be worried; you are still able to do it. If you reach this decision that this coverage is right for you, there are some approaches to get it.
Nowadays, many car dealers offer you to buy gap coverage when buying or leasing a vehicle from them.
Besides, the best option for you is from an auto insurance company.
If you buy this insurance from a dealer, you have to pay more where you can get it cheaper in the insurance company.
Online media is a more fruitful way to get it, where you can complete effective research about it and make a great recession after a huge comparison.
Is Gap Insurance Worth It?
If you bear in mind of picking up GAP insurance, it is essential to keep in mind that this kind of insurance may be obtainable if you’re financing or leasing a new car. Now time to compare your owe and car value. Have you found there you owe more than your car price? If you address as yes, are you able to give out of your pocket when your car is totaled?
Conditions to Get GAP Insurance:
According to III (Insurance Information Institute), to get this policy, you may meet the following conditions:
You have to pay less than a 20 percent down payment.
It finances for more than five years or more.
Leased the car (having gap insurance commonly require for a lease).
Purchased the car (where depreciates faster than the average).
Overturned negative equity from an aged car loan to a new loan.