If you have a car, you will need a car insurance policy that is going to protect your finances on the road. Car insurance is not the only insurance you must consider. Another insurance you need to learn about is gap insurance. What is gap insurance? Why do you need it?
Car insurance is liability insurance that will cover any collision. Gap insurance is something different. The word gap itself is actually an acronym for guaranteed auto protection. Do you need gap insurance? It depends on the vehicle type you lease or purchase. Is gap insurance worth it?
What Is A Gap Insurance for Car?
Gap insurance is an additional auto policy that covers any difference between the insured vehicle value and the lease or loan balance that must be repaid by the owner. If the vehicle is stolen or totaled before the owner paid off the loan, the gap insurance is going to cover the difference.
The difference that will be covered is between the payout of auto insurance and the amount that the owner owes on that vehicle. If you finance the purchase of your vehicle, the lender may require you to get gap insurance for several types of vehicles, SUVs, or trucks.
Specifically, this will include vehicles that can depreciate and also lose value at much faster rates compared to the usual, like the luxury sedan, SUVs, or some types of a sports vehicles.
How Does Gap Insurance Work?
You have learned about ‘what is a gap insurance’, now it is time to learn about how this insurance works. It is now easy for drivers to owe the leasing company or lender to purchase a car. Smaller down payments and long lease or loan periods ease people to get a new car.
In the terms of vehicle valuations and filing claims, the equity must be equal to the car’s current value. The value isn’t the price you paid, but what the regular insurance is going to buy if your car is being wrecked. The problem is cars depreciate very quickly during their first years on the road.
If the car is wrecked, the policy is not going to pay the cost of replacing your wrecked car with a new car. You will only get a check for a car that is comparable to the car you own. The insurance company calls this the actual cash value of the vehicle.
What Is A Gap Insurance And Do You Need It?
There are some situations that make gap insurance highly recommended for you. If you are in at least one of these situations, you need to consider getting gap insurance.
1. You financed a vehicle and made no or little down payment
Without making a significant down payment, you are going to be upside down in the auto loan when you drive the vehicle off the parking lot. You may need several years before the amount of loan and the actual value of the car begin to balance.
2. You have traded in the upside-down vehicle
When you trade in the upside-down vehicle, the dealership is going to add what you still owe to the balance of loan of the new vehicle unless you pay the difference or gap upfront. The extra balance can come back and haunt you if the car is stolen or totalled.
3. You bought a vehicle that has bad resale value
If you purchased a vehicle that loses value quickly, you would probably be upside down with no substantial down payment. When you think about something substantial, you need to think at least 25% or even more.
4. You are planning to put miles on quickly
Another thing you need to know after knowing about ‘what is a gap insurance’ is that a lot of driving is going to reduce the value of your car faster than anything else. the faster you gather up the miles, the faster your car’s value will depreciate.
This is dangerous since you will drop your car’s value much more quickly than you can finish your payments.
5. You have taken out the vehicle loan with a long term
Car loans in a very long term, more than sixty months will take longer to hit the break-even point, which is the moment when the balance of your loan and value of your car starts equalizing.
If you are in one of those five situations, you need to consider understanding more about what is gap insurance and how to get it. Still, have questions about gap insurance? You are going to see many questions about gap insurance below and the best answer to help you understand more about it.
How To Get Gap Insurance?
If you finally decide to get gap insurance for your vehicle, the easiest and cheapest way is to ask the auto insurance company of yours about any program that allows you to add a gap policy to any existing policy you get. Compare the prices online and make sure you get the best deal.
Car dealerships may offer a gap policy but the policy’s price may be higher than the price offered by major insurance companies.
Can You Get Insurance After Buying A Vehicle?
Yes, you can. The best thing you can do is call the insurance company you chose and then ask them whether you can get a gap policy to the existing policy. The insurance company should be able to let you know what options are available for you and how much the cost to add the insurance.
Should You Get Gap Insurance Though You Have Full Coverage?
Yes, because gap insurance and full coverage auto insurance are covering different things. It is crucial to get gap insurance. Don’t worry, this gap insurance is cancellable. You are free to cancel your gap insurance.
When the loan balance is low enough to be fully covered by the payment of collision insurance, you can cancel the gap insurance.
Auto insurance and gap insurance are two different things. What is gap insurance? All details you want to know about this additional insurance for vehicles can be found on this page. Make sure you read them all before deciding to take this insurance or to leave it.
