Gap insurance may probably not be one of the things you consider when purchasing a brand new car, but it’s definitely one of those hidden treasures that can save you from severe financial hardship. When traditional car insurance is designed to cover the cost of repair or replacing your vehicle and other vehicles, gap insurance can be used to fill in a crucial financial gap. If you’re leasing or financing your car, knowing the process of gap insurance can help you out in the event of an unexpected incident.
The Basics of Gap Insurance
Insurance for gaps, commonly referred to by the name of Guaranteed asset protection insurance is designed to protect the difference — or the “gap”–between the amount your car is worth and the amount you owe it. This is the truth: when you take your vehicle off the lot the value of your car begins to decline. In reality, the majority of vehicles are able to lose around 20 percent of their value within the first year. If your vehicle is damaged or stolen in this time the standard insurance policy will only cover the market value currently of your vehicle, which could just not enough to pay the remaining balance of the lease or loan.
That’s where gap insurance comes into the picture. It will ensure that you don’t end up to pay out of pocket the remainder of what you have to pay. In essence, it serves as an insurance policy for your financial security to shield you from the dreadful consequences of depreciation on your vehicle.
Who Should Consider Gap Insurance?
It’s not necessary in all cases, however it can be an absolute necessity in certain scenarios. When you lease a vehicle it is typically stipulated in the lease contract. Lease companies know how fast vehicles depreciate, and they want to ensure that they’re protected in the event of the loss.
If you’re financing a car the gap insurance can be beneficial if you’ve put down smaller down payments or have chosen the longer term of your loan. With smaller down payments, that you’ll have to pay more for the car at first, while longer loan terms could lead to slower equity development. In both instances you may end up paying more than the value of your car over a longer period of time which makes the use of gap insurance a wise option.
Furthermore, owners of high-end vehicles or those that depreciate quickly could be able to get benefit of gap insurance. The most expensive vehicles diminish in value quicker which makes the gap between what the vehicle is value and the amount owed more substantial.
How Gap Insurance Works in Real-Life Scenarios
Let’s say you purchase a vehicle for $30,000 and then finance the whole amount. After a year the car is taken and the insurance firm decides that its market value is at present $24,000. The problem is, you’re still responsible for $28,000 to the lender of your car loan. If you didn’t have gap insurance, it would be forced to pay the difference of $4,000 yourself. With gap insurance the $4,000 amount is covered, making you without financial stress.
Similar logic is applicable if your vehicle is destroyed during an incident. The traditional auto insurance policies do not consider the amount of your loan, and are determined by market value. Gap insurance makes sure that you don’t get stuck with an obligation for a car that you no longer own.
Is Gap Insurance Worth the Cost?
The most frequently asked concerns with gaps insurance concerns whether they are worth the cost. As with all insurance policies the cost of gap insurance will depend on your personal circumstances. The majority of the time it is inexpensive. You can buy it as an addition to your insurance policy for autos or be offered it by the dealer when you lease or finance an automobile. On average, it will cost only a few hundred dollars yearly and that purchase could mean you save thousands of dollars in the event of the loss of your vehicle completely.
However, if you’re owed less on your vehicle than its value at market-value–or completed the repayment of your loan completely, you do not require gap insurance anymore. Removing it at the appropriate moment can help you save money, which is why it’s crucial to check your coverage regularly.
How to Get Gap Insurance
Finding gap insurance is a simple procedure. A lot of car insurance companies will offer this as an supplement to their policies. You can also purchase it through the dealerships of your car or through financial institutions. Although purchasing it from a dealership might be convenient however, it’s generally more cost-effective to include it in your insurance policy for autos instead. Comparison shopping and comparing rates from various providers will aid you in locating the best price.
It’s also important to note that lenders might include gaps insurance in your loan contract, without you knowing that it’s there. It is important to study your contract and be aware of what’s included prior to buying additional insurance.
The Final Word on Gap Insurance
Insurance for gaps may not seem elegant, but it’s actually an effective and useful tool to protect you from financial ruin. For those who finance or lease an automobile, it can give you assurance that you won’t end up paying for a vehicle that you no will ever own. Although not everyone requires it however, those who do get the most benefit from the protection it provides.
In the end, gap insurance is about being prepared for the unforeseeable. There are always risks, and incidents occur and, when they do happen, having the proper insurance in place could make all the difference. When you understand the definition of gap insurance and how it operates, and whether it’s appropriate for you, you’ll make a sound decision that will protect your financials and your peace of mind.