What is Gap Insurance?

 

What is Gap Insurance and When Do You Need It?

Thinking of buying a new car? There might be quite a few tricky things to consider, including your auto insurance. Generally, everyone understands the basic need of an insurance - if you are involved in an accident and your car gets damaged, you can repair it and your insurance company will pay for it. In case your car is stolen or totaled, you will get paid as per the car's value and then you can choose to buy another car. Deductibles might be one of the complicated aspects, but otherwise, insurance policies are pretty simple to comprehend. However, there are some aspects to consider which might change the way you buy your auto insurance plans. One of these includes Gap (Guaranteed Asset Protection) insurance.

What is Gap Insurance?


Whenever you buy a new car, your dealership will offer gap insurance to be included in your policy. However, you might not be sure whether the additional cost is really worth it. Especially if you are pushing your finances while buying a car, you might be skeptical about adding new expenses. In order to decide whether gap insurance is right for you, you must first completely understand what it really is. You may have often heard that your new car will lose nearly half its value the minute you drive it off the lot. Though your car might not lose its value that fast, the depreciation process begins quite quickly.

Let's say you have taken a car loan to finance your new car. When you buy it and drive it home, it starts depreciating and its resale value becomes much less than the money you still owe to your finance company. Unfortunately, within a month if your new car gets hit by another car and is totaled, your insurance company will only pay the actual cash value (ACV) of your car. This amount will be a few thousand dollars less than the money you owe on your loan. If you don't have enough cash around, paying this gap might put a dent in your finances. In such a case, having gap insurance offers the policyholder the difference between the car's ACV and the balance on your loan.

Who Needs Gap Insurance?


While many cars get stolen or totaled, not all car owners really need gap insurance. It is beneficial for those who finance their car with a loan and for times when the car's value is less than the loan's balance amount.

Does Your Car Depreciate Faster Than Others?


If you own a car that tends to depreciate faster than other models, getting gap insurance might be the right choice for you.

Do You Have a Long-Term Loan?


If you have taken a loan for longer than 36 months, your payments will be lower but it also means that it will take longer for your ACV to match with your loan's balance amount.

Have You Put Down Little or No Money? Or Have You Borrowed More Than Your Car's Price?


Remember that the more debt you take, the longer you will notice a gap and thus, this insurance will be highly useful for you.

Speak to your dealership's finance manager and your insurance agent to get the best quotes on gap insurance so that you can buy this protection for your car at the best price!


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