What is GAP Insurance and Why Do You Need It?

Just when you thought you knew almost everything about insurance coverage – along comes gap insurance.

Even though it may seem trivial, gap insurance is very important for leasing. And when you’ve made a small deposit when choosing a car, a gap policy can be lifesaver too. But first, let’s explain why it exists.

As the name implies, gap insurance protects what traditional automobile insurance isn’t going to. Basically, it closes the hole between what your insurance company will pay in case your automobile is thieved or destroyed and anything you owe the finance provider.

How does GAP insurance work?

Let’s take a test case. Say you purchased your vehicle 8 weeks ago for $25,000. You start making payments at around $500 per month based on a six percent interest rate. Next, disaster strikes: a tree falls on your car and flattens it.

You call the insurance provider and it checks its crystal ball and decides during the time of the accident your car was worth only $20,000. The vehicle may well only be a few months old, however it has by now lost twenty percent of its worth. Sadly, the finance firm still wants the full amount your own them. With interest, taxes and license fees, they figure that being $27,000.

Yikes! There’s a gap of $7,000 within the $20,000 that the insurance carrier is going to pay you and the $27,000 the finance provider is requiring. A good number of folks are going to be eating Spam meals for the next couple of years, but if you have gap insurance you are able to safely buy steak.

This is exactly why gap insurance plan is a must for numerous motorists. In fact, gap insurance coverage is typically required by rent contracts or incorporated within them. If a gap policy is needed however, not included in your agreement, you need to shop around for this insurance plan (insurance providers offer it). If gap protection is listed within the lease, make sure exactly how much is offered and how much you’ll be paying for it. (Occasionally, rent contracts may incorporate what is known as a gap waiver, which protects you from gap expenses in cases when the rented automobile is declared a total loss – eradicating the necessity of a gap coverage.)

Is gap insurance plan important for people that finance their vehicles? Clearly, it depends on your coverage. In case your normal insurance coverage is created to repay the completely financed amount of money, then you definitely do not need gap policy.

A few things to bear in mind when purchasing gap insurance plan:

1. Despite the fact that the majority of people invest in it whenever a lease contract is started, some insurance carriers will offer you a gap coverage anytime during the lease term.
2. You have to be in agreement with all conditions of the lease.
3. Your gap insurance coverage will not be honored without having comprehensive and collision coverage. Additionally, lease contracts usually require that you have comprehensive and collision regularly.

In case your vehicle is smashed up, or stolen, diligently stick to all demands made by your insurance provider. For example, some companies ask you to keep on making loan payments on your destroyed vehicle until the money from the gap insurance is compensated.

So whenever initiating a car loan or lease, never forget to consult your insurance agent or loan officer about gap insurance plan. In case you have an accident you’re going to be grateful you planned in advance.

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