Vehicles owners should be aware of “GAP” (Guaranteed Auto Protection) insurance when buying their vehicles. Simply put, gap insurance pays the difference between the amount owed on your car loan and the car’s current estimated value. If your vehicle is totaled in an accident or stolen, your collision and comprehensive coverage will only cover the car’s current fair market value. For example, though you may have purchased a car for $10,000, various factors depreciate the value – starting from the moment you drive it off the lot. After a few months, your car’s fair market value may be only $8,000. The $2,000 gap will be left for you to cover unless you have gap insurance. The best way to check your current value, the amount the insurance company will pay in the event of total loss, is Kelly Blue Book.
If you are planning on buying a new or used vehicle, there are a few things to know about gap insurance that could protect your investment and your wallet.
Why You May Need GAP Insurance?
If your loan amount is greater than the actual cash value of the car, you will have to pay the difference. Perhaps you were in an accident with your $20,000 vehicle you bought 2 months earlier. The Kelly Blue Book current market value is $15,000. You will have to come up with the $5,000 difference and figure out how to buy a new vehicle.
Who needs GAP insurance?
Gap insurance is not for everyone. After buying your vehicle, if you are able to pay off the outstanding amount on your loan then you do not need gap insurance. Though, most people do not have this luxury. Individuals who are leasing a vehicle, have a low down payment, or bought a vehicle that depreciates in value quickly, should highly consider purchasing gap insurance. Insurance.com also states that individuals who drive more than average should consider gap insurance as well because, as well all know, high mileage affects value.
Where to Get GAP Insurance?
Hearing the car dealership’s sales pitch is a part of buying a vehicle. They will likely attempt to convince you that buying gap insurance through them is your best option, which it is not. Dealerships profit from selling you gap insurance by retaining a commission based on the policy. Dealerships can bundle gap insurance into your new purchase which can cause you to pay interest on your gap insurance. Additionally, car salesman can alter the price of gap insurance, selling it for hundreds of dollars more than other options. The best option to buy gap insurance is from your car insurance company. Gap insurance from an insurance company can cost typically $20-30 dollars extra a year.
When to Get Rid of GAP Insurance
It is important to know when you know longer need gap insurance. When you have paid off your loan to an amount lower than your car’s current market value or an amount you can pay in the event of a loss, you should cancel your gap insurance.
Auto accidents are stressful enough without the added concerns of unpaid loans and finding new transportation. To prevent future chaos and uncovered cost, be sure inquire more about gap insurance.