All About GAP Insurance
Even if you possess full comprehensive car insurance , it is possible to lose money once your new car becomes a write off. Due to depreciation, a new car can lose its value very quickly. After three years, a new car loses as much as 60% of what it was initially worth.
GAP insurance is simply the difference between what the car actually costs and what you still owe. Determining factors are:
- The amount you paid for the car
- How much you still owe on the car
- What buying the car now would cost you
Who Needs GAP?
If you fully own your car, or have a lot invested already in it, then you do not need this type of insurance.
According to the vice president of auto product strategy and design for Travelers Insurance, “If you have an auto loan and have not paid a significant sum, then car gap insurance is for you.” This means you should consider this sort of insurance if you:
- Are leasing the vehicle.
- Finance for more than 5 years.
- Have or plan to put less than 20% down.
- Have rolled bad equity from an old vehicle loan into a new one.
- Drive more than 15,000 miles annually
- Buy a vehicle with high depreciation rates history.
More than likely your insurance carrier offers auto gap insurance, and many carriers will allow you to add it at any time to cover the original loan.
- Gap Insurance aids with reduced down payments: This type of insurance is of greater benefit to vehicle owners who owe more on the car than what it is really worth. If you buy a vehicle with hardly any or no down payment at all, it is very likely that you will owe the car lender much more than your insurance providers would pay if you had a major accident—even if you were just leaving the car dealer with the new vehicle. In most instances your used or new vehicle drops in street value from 20% and 30% from the price you paid for it. If by any chance you have accident—the difference will be paid by you. According to a Charleston car accident attorney, car accidents are the most common cases they deal with. This is where a gap insurance policy comes in handy, and helps you avoid paying hundreds or thousands of dollars in damages.
- Gap Insurance helps when you are buying a vehicle that has a very long loan term. Once you are buying vehicles with loan terms for 60 months and above, it may take quite a few years before you can say you have equity in the vehicle. The gap insurance policy insures that you do not have to find a large sum in order to settle the loan in case of an accident, loss, or theft.
- Buying at the dealership. This is one of the biggest mistakes consumers make when purchasing car gap insurance. This is done because it is believed that you cannot buy anywhere else. This is not true as it can be bought at any time, and buying from insurance companies is usually much cheaper.
- Placing greater import on price as opposed to coverage. This is another major mistake. Choosing a car insurance company based only on the premium price may short change you in the area of offerings.
- Incomplete or incorrect driving history. Quite alright, this may give you a good insurance quote, but, will eventually come back to bite you. Once there are records of traffic violations, accidents or DUI, be sure the company will find them.
- Thinking all insurance companies are the same. Do your homework, and you will find they are not all the same. They may vary in price, repair options, convenience and the brands of spare parts offered.
Do you have GAP Insurance? Why or why not?