What is GAP Insurance?
Literally speaking, a GAP insurance is a policy which covers the possible gap between the car’s worth and what you will owe on it if in case it encounters a loss like theft or accidents. Most auto insurance companies and lenders offer these to their customers as a security measure against unforeseen financial losses.
Car owners who are incapable of paying large amount of down payment on their purchased vehicle are highly recommended to purchase GAP insurance. It gives you the assurance that even if you do not have enough money to pay the amount difference of the vehicle and what you owe of it, it may still be paid accordingly. Nevertheless, it is always best to review any document that you need to sign and consent with to avoid future worries associated with GAP insurance.
Typical Scenario Which Shows the Advantage of Owning a GAP insurance
GAP insurance is very handy especially in cases where in the damage repair expense is higher than your vehicle’s actual cash value (ACV). Let’s say for example you bought a vehicle for $30,000 but have not paid the initial payment. Unfortunately, you encountered a car accident damaging the entire car. You have an auto insurance policy but the valuation of the repair is higher than the ACV. Nevertheless you got lucky since the surety company decided to pay a few of the expenses but you are still left with $3,000 to pay. Who will pay for it? Gap insurance companies will pay the remaining expense especially if you have chosen a collision or comprehensive type of GAP insurance.
GAP Insurance Requirements
Normally, all lease agreement requires gap insurance. This is essential especially in the part of the buyer since it guarantees him protection from unforeseen vehicle damages and disasters. But in other cases outside that of lease agreements, GAP insurance becomes a wise option.
GAP Insurance Coverage
More or less, GAP insurance covers different types of losses caused by theft, vandalism, fire, accident and natural calamities like flood, hurricane, and tornado. At times, some surety company which offers GAP insurance even covers insurance deductible to ease you from car accident financial worries nevertheless it will not cover unpaid lease or overdue loan payments, car equipment that are not factory installed, vehicles which are not covered by both collision and comprehensive insurance, financial penalties due on leased vehicles and extended warranty expenses. Always secure and read these exemptions as specified in the policy before you start agreeing with any of the terms that surety companies will present to you. This is so you can properly evaluate if you do need GAP insurance.
GAP Insurance Tips and Reminder
Before purchasing GAP insurance for you vehicle, it would be wise to check with your current car insurance provided if it not yet incorporated in your premium. Moreover, be cautious of some companies which hide GAP insurance in other names like automotive loss protection and new car replacement policies. Do not be afraid to ask because you have every right to know how a particular policy works.