What is GAP Insurance?
What Is GAP Insurance...And Why Would I Need It?
Purchasing a new car is an exciting experience. It is also a big responsibility. Very rarely does a person purchase a car in cash. The vast majority of the vehicles purchased today are financed. There are a few ways to protect your new investment. The most common method of protecting that investment is obtaining automobile insurance. The unfortunate truth is, a full coverage automobile insurance policy is often not enough to cover you in the event of a severe accident.
The Other Insurance You Need: GAP Insurance
GAP Insurance is often offered by the car dealership after you have agreed on a price for the vehicle. In a lot of cases, the buyer will refuse the offer because they do not want to see their price go up at all. This is the first mistake. GAP insurance is a one-time charge that is often less costly than one year of premiums for a traditional auto insurance policy. It covers you for the entire length of the vehicle’s financing. Considering that most car loans are five or more years long with little to no money down, GAP insurance is very inexpensive.
What Does GAP Insurance Cover?
GAP Insurance is the coverage that kicks in after an accident. If the insurance company deems your vehicle to be a total loss, they will pay you the ACV or Actual Cash Value of your vehicle. That amount is seldom equal to or more than the amount that the owner owes on the vehicles loan due to depreciation and interest rates. GAP Insurance pays the difference between the two amounts. Most GAP Insurance policies will also cover your deductible.
What is the Advantage of GAP Insurance?
The great part of GAP Insurance is that you know you will not be making payments on a vehicle that you no longer have. If you vehicle is totaled in an accident, you probably will not have to worry about your deductible either. All of this is great because GAP Insurance typically costs only a couple hundred dollars and is in effect throughout the entire length of your loan. When you have been in an accident severe enough to total your car, there is so much to do. Even if you were lucky enough to avoid injury, you have to worry about dealing with the insurance company and finding a new car. If you had GAP Insurance, you do not have to worry about what happens if you do not get enough money from the insurance company to be able to replace your car. You will know that at the very least, you will be starting from scratch with no additional debt to complicate the process.
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