What is GAP car insurance?

A very good question and one not often asked is, ‘’What is GAP car insurance?’’

The simple answer is that GAP car insurance provides coverage for the difference in the amount covered by your standard auto insurance policy and the value of the vehicle. Many people receive a huge shock when they come to submitting an insurance claim for the theft of their car or should the car be written off in an auto accident as most car insurance companies only provide reimbursement for the ‘Blue Book’’ value of the vehicle.

This may leave you in a position where you owe thousands on a vehicle that is no longer useable.

GAP car insurance provides coverage for this GAP in insurance helping you avoid a large bill or asset loss. The unfortunate truth about most vehicles is that they lose value each year.

Will I still have to pay my deductible in event of a total loss?

Most car insurance companies will deduct your policy deductible from the reimbursement check. Some providers are starting to offer an option where in the event of a total loss the deductible will not be included but at the moment this option is few and far between.

How much does a car depreciate in value?

On average a new car may depreciate as much as 20% just when it is driven away from the car showroom. The yearly rate each car depreciates is dependent on the class of vehicle, make and age. As a general rule if you finance a new car with les than 20% down you should always get GAP car insurance.

The rate of a cars depreciation is often greater in the first two or three years of ownership. In order to estimate the ongoing need for gap liability insurance (after the first year or two) you should calculate the depreciated value of the vehicle against the amount owed. Remember, GAP car insurance is covering the difference between what is covered by insurance and the actual value of the vehicle (ACV). There will come a point when you do not need this extra coverage.

You may be in doubt as to whether or not you need Gap Liability Insurance?

Let’s start off by saying that is certainly advisable and particularly under these circumstances:

• You decide to pay off your car over a period extending beyond forty eight months; those taking a payment plan over seventy two months are encouraged to take advantage of gap insurance. The longer the term of your loan the less principal you pay every month so your total car loan liability is reducing at a lesser rate than the car value
• Cars that are noted for depreciating quickly (such as luxury vehicles, or those which have been custom designed and fitted)
• Rolling in a prior car loan? Should you decide to attach your outstanding car payments to your new car loan, the value of the car and the insured value is vastly different and places you in a precarious position.
• A deposit of less than twenty per cent produces a circumstance that certainly requires gap insurance.

All of the above situations place people at an unfair advantage as they are exposed to the risk of paying back hefty car payments on a car they no longer own. Leased cars are often covered by gap insurance as car leasing companies understand how to protect themselves (wise consumers should follow their lead); however check the agreement carefully to make sure you are covered as this is not a general rule.

To further understand the situation in real money terms take for example:

• You buy a car for $20,000 and manage to pay off $3000 over the first year
• In the second year the car is valued at $13,000 plus you have a deductible of $1000
• In the even of a total loss car accident the driver without GAP car insurance will only be covered to the value of $12,000 however you still owe the bank a further $4,000 on your car loan!
• Gap Car Insurance would cover this GAP – the $4,000

Is GAP Car Insurance expensive?

The answer to this depends on a number of factors including the value of the car and the amount owed. Generally speaking GAP car insurance coverage is not expensive and may range anywhere from $7 a month to $20 a month, well worth the peace of mind.

What types of GAP Car Insurance are Available?

The deeper you investigate gap liability insurance the more you will discover so be aware there are different types of gap insurance.

Simple Gap insurance, which may only be issued by a licensed agent, is an additional type of car insurance coverage purchased by the consumer. Its important to note some of the biggest car insurance companies don’t offer gap insurance cover.  Check with your regular insurer to see if they can help, if not you may want to compare more car insurance companies about the GAP car insurance products available.

The second type of gap insurance is known as a Gap Waiver and this is an agreement between the bank or car dealer and you, to waive the difference between loan owed and the real value of the car.  This waiver must be backed by a genuine insurance policy and may attract interest.

Lastly there is an insurance called Gap Endorsement, this is an amendment to your current car insurance to include the gap coverage.

Gap insurance is only offered on vehicles  that are financed and they must also cover comprehensive insurance and collision insurance, remember once your loan amount is paid off the policy should be cancelled as there is no point to having car insurance for a vehicle you no longer own.

Gap insurance covers your financial well being should your car be written off or stolen; the loan amount is covered and you will be in position to purchase a new car. The astounding choices and styles of gap insurance may at first seem perplexing, however help is at hand so simply enter your zip code to find local car insurance companies who can help.