In the case of purchasing your own car, you need to worry not only about obtaining all the necessary documents but also about obtaining insurance. The service provides financial support in the case of an unforeseen situation on the road and helps to compensate for all expenses. It should be taken into account that in addition to general car insurance, there are also other types of coverage.
One of them is GAP insurance. This is an optional variety but it can be useful in many cases. The main benefit is financial savings, as the policy can save you from serious expenses in the case of unforeseen situations. Given this fact, it is worth learning more about what is GAP insurance for and the features of obtaining it.
What Does GAP Insurance Provide?
Faced with the need to obtain insurance for their car, many drivers are limited to only the basic variety. However, this may not be enough in some cases. One of them is the purchase of a car on credit. In such a situation, the risks increase significantly, because the vehicle is in use during the payment period. The occurrence of an unforeseen situation under such conditions can cause enormous costs.
If you want to minimize them, then you should find out what is GAP insurance and how it works. The name of this policy was formed as an abbreviation of the words guaranteed car protection. This means that the policy is aimed at reimbursing the difference between the loan amount and the depreciated value of the vehicle. That is, this type of insurance is used when the balance of the lease or loan exceeds the current price of the car that was in an emergency situation.
How is Insurance GAP Used in Practice?
In the case of an emergency, the car owner can use comprehensive insurance or an accident policy. However, the maximum payments for such types of insurance are equal to the price of the vehicle that existed until that moment. However, you need to take into account depreciation, which can cause a significant difference between the value of the stolen/wrecked car and the debt.
GAP coverage is designed for it, which can save you from colossal financial losses. Insurance works according to a simple scheme. If the vehicle has been broken into in an accident or stolen by criminals and your general insurance covers it, then it is enough to use the basic insurance. It can be a collision policy or a comprehensive solution.
As a result, the insurance company will pay the creditor the entire required amount. If the amount you owe the creditor as a result of the accident is much larger, then car GAP insurance is used. This policy is designed to cover the difference created. In this way, he can protect himself from serious financial consequences. It really works in practice. That is why experts who give auto insurance tips for beginners often point out the importance of the policy.
What is GAP Insurance For?
To find out the answer to this question, you need to determine what the policy covers. Auto GAP insurance can be used if 2 conditions exist:
- The vehicle became the object of an incident (it was damaged in a collision or other emergency situation or it was stolen).
- The value of the car at the time of the situation was less than the loan debt.
This is the difference covered by car insurance GAP. If the policy is not used, the obligation to pay the full amount remains with the car owner. It should be emphasized that often these amounts are several thousand dollars or more. Everything depends on the conditions of the event and the amount already paid by the driver.
Owners who decide to take out GAP car insurance should also be aware of expenses that are not included in the policy coverage area.
| Balance carried forward from a previous lease or loan | Car insurance GAP cover does not include payments that the owner has undertaken to pay under other contracts. |
| Commission and overdue loan payments | According to the terms of car GAP insurance, payments are made only for the principal amount of the loan. |
| Down payment for the vehicle | Obligations for this payment must be fulfilled only by the buyer of the transport. |
In addition, GAP insurance for car does not cover extended warranties, security deposits, loan insurance fees, vehicle insurance deductibles, and rental penalties (including for excessive use or increased mileage). You can choose other policies to insure such expenses. In addition to the features of coverage, car owners are also interested in the cost of GAP auto insurance.
After all, for many clients, the financial aspect often becomes decisive. As for the policy, the insurance companies offer affordable prices. Important information in this regard is provided by Forbes Advisor research. It says an average of about $60 a year. This is a relatively inexpensive cost when compared to the amount of compensation in the case of an insured event.
Who is GAP Coverage Insurance Suitable For?
When it comes to additional types of insurance, some customers have doubts about the necessity of registration. This is not surprising, because each such policy is a separate cost item. If you have doubts about GAP insurance for cars, you should consider several cases:
- Planning long and frequent car trips, which significantly accelerate depreciation.
- Purchase of a vehicle model that can depreciate quickly (it can be sports cars or models with a luxurious design).
- Purchase of a car under a program that provides for a down payment of less than 20%.
- vehicle rental.
- The need to transfer the balance from the previous loan to a loan related to the purchase of a new model.
- Issuing a loan for a term of 60 or more months.
In all of these situations, there is a high probability of incurring costs that are covered by GAP insurance coverage. If at least one of them occurs to you, you should think about taking out a policy. In addition, experienced experts recommend taking into account the amount of the loan balance and the value of your car in order to determine the feasibility of insurance.
How to Issue Insurance GAP Coverage?
Various companies offer the insurance product. It can be purchased at insurance organizations or at a dealership when purchasing a car. In addition, the option can be automatically added to the leasing agreement. In all cases, terms and amounts will vary. In dealerships, the insurance fee is fixed and is approximately $450-700. However, this option is not profitable.
It assumes a sufficiently high price and the presence of various restrictions. The best solution can be GAP insurance for a new car issued by an insurance agent. This option can easily be added to existing policies, including collision coverage and comprehensive coverage. Extending policies will add just $20-$60 per year.
Conclusions
A car GAP coverage is not included in the category of mandatory policies. However, its registration is sometimes an important step to reduce financial risks. Auto GAP insurance coverage is especially relevant for those buyers who do not make a down payment and divide the entire amount into a large number of payments. Under such circumstances, the probability that in the event of an accident the value of such a car will be less than the loan balance increases. To solve this issue with minimal difficulties, it is worth taking out a policy in advance.
Also read: Significance of Car Insurance
