The topic of gap insurance is sure to come up if you are purchasing a vehicle from a dealership. Gap insurance protects a car owner in the event the value of the vehicle is lower than the amount owed on the loan when the vehicle is totaled. For example, a new $20,000 vehicle depreciates significantly after it is driven off the dealership lot. If that vehicle is immediately involved in an accident, there could be a $3,000 to $5,000 difference between the value of the vehicle and the remaining loan amount. Gap insurance pays that difference. Always make a habit of comparing the car insurance online before paying even a single penny.
Benefits of Gap Insurance
- No deductible. Gap, or guaranteed auto protection, pays the difference between what an insurance company will pay you for your car and the amount you owe on the vehicle. This additional insurance is not subject to a deductible, which could cost the vehicle owner additional money. There are always shortcuts to know more in less time, here is the effective method.
- Good for luxury cars. Luxury vehicles are particularly at risk because the initial depreciation of a luxury vehicle is greater than what is experienced by most vehicles. So if a vehicle generally loses 15 percent of its value the moment it’s driven off the dealer’s lot, that’s a lot more money if the vehicle cost $50,000 as opposed to $20,000, for example.
- Upside-down protection. There are a number ways to get “upside-down” on a car loan. That’s the situation in which the amount you owe on a vehicle is greater than the value of the vehicle. One way, already described, is in the initial weeks and months after a new vehicle has been purchased. However, a car owner who decides to refinance his or her vehicle will inevitably owe much more than the vehicle is worth. Gap insurance provides protection no matter how you find yourself with an upside-down car loan.
Issues with Gap Insurance
- Cost. Gap insurance will increase the monthly cost of your vehicle by adding another insurance premium. It’s up to the owner of the vehicle to determine if the cost of gap insurance is outweighed by the risk of a totaled vehicle within the first year.
- Can’t be transferred. While warranties can be transferred from one owner to another, gap insurance cannot. If there is any chance of selling your vehicle, particularly within a year or so of purchase, you may want to think twice before purchasing gap insurance.
- Time restrictions. Most insurers also place time restrictions on gap insurance. In many cases, gap insurance can’t be purchased after you’ve had a vehicle for a year. Drivers who decide to refinance a vehicle may want to protect themselves by purchasing gap insurance, but if the vehicle is more than a year old, that option may no longer available in many cases.
Gap Insurance is a different concept, the first step in finding the insurance policy is by getting well organized first and then thinking of planning for an insurance.
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