Everything to Know About Gap Insurance
Introduction:
So you’ve purchased (or ordered) a new car, and it’s time to complete the paperwork. You have also gone through the car insurance quotes and got the best rate. But wait, what’s this? There’s another type of policy listed on the stack of papers that your car dealer wants you to sign: GAP Insurance.
GAP stands for “Guaranteed Asset Protection” and is otherwise known as Guaranteed Auto Protection. GAP insurance is essentially an insurance policy that covers the difference between the depreciated value of your car and what you owe on your auto loan or lease in case an unfortunate event happens.
Sounds good, right? Well, it can be if you understand precisely what kind of protection and benefit you’re getting and why you might need it. So let’s sweep and break down exactly what GAP insurance is; when and why do you need it?
What is Gap Insurance?
No matter how expensive and branded a car you buy, your car value depreciates as soon as you take the first ride out of the lot. Now, what happens if your car is totaled (means the cost of the repair is more than the car’s worth) or stolen within the first few years of the purchase? Well, the loan amount you owe to the bank could be more than what your car is worth. Moreover, the insurance company will pay you the actual cash value of the vehicle. Thus, you have to pay the difference out of your pocket. So why pay a single penny from your pocket? Instead, get gap insurance.
Gap Insurance also called loan/lease payoff insurance, covers the difference between the actual cash value and the outstanding balance on the loan or lease – thus eliminating any financial loss to you from being “upside-down ” (owing more loan amount than the value of the vehicle)
Why do you Need Gap Insurance?
If you’ve purchased a new car, you either have an auto loan or a lease agreement. As a car owner, you are financially responsible for the depreciation in the value of the vehicle. The difference between what you owe and the value of your car after a certain period of time is called depreciation. Many lenders need you to take a collision and comprehensive coverage on your car insurance until you have paid off the car loan. This comprehensive coverage will only pay the depreciated value of your stolen or totaled car. However, gap insurance will cover the depreciation amount in case something happens to the car.
In other words, if your vehicle is totaled or stolen, the settlement you receive from your insurer may not be enough to pay off the outstanding loan balance. The GAP coverage will help bridge that gap by paying the difference between what you owe and what your insurance company pays for a total loss or theft of your car.
Gap Insurance coverage should also be considered if you have made a small down payment and have a more extended finance period. Also, it’s best to purchase gap insurance if you owe more than what your car is worth. If you need to drive constantly or you have purchased a luxury vehicle that depreciates quickly, then taking gap insurance is worth it. Last but not least, buying a gap insurance coverage is needed if your car is less than three model years old.
Cost of Gap Insurance:
Taking gap insurance is inexpensive and varies from dealer to dealer. Usually, the GAP coverage costs between $200-800. However, there are certain factors that impact the cost of coverage. The cost of gap insurance increases on luxury cars and more significant loan amounts. Also, if you add gap insurance along with collision and comprehensive insurance, your premium will go up.
One of the primary reasons for high premium costs is that most dealers sell high deductible plans to lower the premium amount. Therefore, it’s advised that you buy gap insurance from an insurer instead of a dealer or broker because this will allow you to choose your own deductible amount. Get insurance quotes from different insurers in Texas before buying gap insurance.
Nonetheless, gap insurance can easily be purchased from any auto Web site or dealer and is usually bundled with other coverage like collision and comprehensive insurance. If you are in Corpus Christi, TX, get auto insurance quotes and car insurance quotes from different websites and dealers and choose the best coverage.
Exclusions for Gap Insurance:
Gap insurance doesn’t cover the following events:
- A car that has been declared a total loss or stolen but not recovered by police reports – If the vehicle is financed, it does not cover damage done to the vehicle after the initial purchase,
- GAP insurance does not cover damages arising from incidents such as a vehicle collision, vandalism, or weather-related damage.
When do you Take Gap Insurance?
You can take gap insurance immediately when you finance a new or a used car. Also, gap insurance can be purchased at any time during the life of your loan up to the maturity date, depending on the model of the vehicle.
Remember the amount of gap insurance is directly reimbursed to the lender. So if you consider purchasing a new car in replacement of the old one, then taking further car replacement coverage is a better option.
Bottom line:
Taking GAP Insurance will definitely help in protecting your wallet from the financial loss that might occur due to depreciation in the value of your vehicle. So do not wait any longer and learn everything about auto insurance, car insurance, and home insurance from your trusted insurer.
