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What Is Gap Insurance?

Before a person decided to purchase a new vehicle, they need to check with their insurance company about gap insurance because it might already be included in the auto premium. If is not, this will be something that you can purchase for a decent cost.

There are some insurers that do not offer this type of insurance at all. If this is the case, you should try to find a company that offers gap insurance before you decide to purchase it through the dealer.

Gap insurance is the insurance that will pay for the difference between what you would owe on an automobile and what the insurance company is going to say it is worth. This insurance is a must for someone who may be considering purchasing a new vehicle since a new vehicle will depreciate in value as soon as it is moved from the dealer’s lot. You will appreciate this insurance if you are ever in an accident and still owe money on your car.

Usually gap insurance is built into a lease for any of the leased cars that a consumer may decide to use. Do not just assume that it is. Make sure that you are asking questions and finding out the information that you need to make sure that you are covered incase that you are ever involved in an accident. You have to make sure that you are protected.

The premiums are usually low for gap insurance. This is not going to be something that you are going to spend a lot of money on. For new purchases, it can be automatically added into your monthly car payment. This is hardly noticeable and it will allow you to have the protection that will make you feel secure each time you decide to drive your car.

Gap Car Insurance: Do You Need It?

What is gap car insurance and how do you know whether you really need it? Gap car insurance, like many other types of insurance isnt necessarily required. That is to say that you can certainly purchase a new car without gap car insurance; however, you could be leaving yourself open for some losses if you dont purchase it. Read on for more tips to better understand whether you need gap car insurance or you can skip it.

Gap car insurance covers the difference between the market value of your car and your loan amount. Aren’t the two the same, you might ask. Not necessarily. You see, the moment you drive your car off the lot it depreciates, or loses value, immediately and quite significantly. Lets say you purchase a new car and pay $25,000 for it. On average a car will depreciate at least 20% right after it leaves the dealership. That means your brand new car is now worth only $20,000. What happens if you have an accident soon after the purchase? Even if you have full insurance coverage, including comprehensive and collision, your insurance policy will still only cover the market value of the car. Unfortunately, even though the market value and insurance policy are now worth only $20,000 you still owe in the neighborhood of $25,000 for the car. Without gap car insurance you’ll be stuck covering that additional $5,000 on your own.

Be aware that not all gap car insurance policies are the same and this is important. For example, some gap car insurance policies will cover losses due to theft and accidents but not all so be sure to ask questions regarding specifically what is covered in the policy before you take it.

Usually, gap car insurance is a good idea if you are about to purchase a new car and are concerned that you wouldn’t be able to cover the difference between the market value and the amount that would be cover by the C&C policy. Be aware that gap insurance is not available for older vehicles in most cases.

While your certainly not required to take out gap car insurance by your lender or the dealer, it can help you to rest easier in knowing you wont be stuck owing thousands of dollars on a totaled car in the event that you suffer an accident or theft shortly after the purchase.

It is also important to understand that if you finance your car through the dealership you can usually take out gap car insurance at the time of the purchase; however, youll probably end up paying more for the policy than if you simply took it out with your regular auto insurance agent.

Before taking out gap car insurance, always be sure to check your existing policy to find out whether gap insurance might already be contained within that policy. You never know, it might not necessary to purchase an additional policy at all. If its not included, give some thought to whether the price of the gap insurance would be worth the trade-off of not having to worry if you have an accident and cant afford to pay the difference between market value and coverage amount with a regular policy.

Gap Insurance: A Financial Safety Belt

Why is gap insurance considered as a financial safety belt? Simply put, it keeps you from being financially ruined when disaster hits your car. For example you are in this situation, you bought a late-model car three months ago using a car loan with a regular car insurance. The car costs $30,000 and you have already made three payments of $900 each month. Then, disaster strikes. An electric post falls and slams down on your car. The car was flattened to half its height.

Immediately, you reported it to the auto insurance company, which they in turn play with numbers, mileage, depreciation, market values, and other related stuff. After a couple of days, the adjustor informs you that the worth of your car at the time of the accident is $25,000. This is the amount that the auto insurance company will provide you. But the finance company that gave you the loan will still consider the car to be worth its original price. They also play with numbers, interest rates, taxes and license fees. Then they come up with the amount of $38,000. This is the amount that you need to pay them. If the auto insurance company releases the $25,000, where will you get the remaining $7,000? Your car is already a wreck but you still owe the finance company.

You need not face such a dilemma if you have a gap insurance. With the gap insurance, you can ignore the difference between the amount covered by the regular car insurance and the amount you owed the car loan company. This difference is called a gap and the gap insurance bridges it so that you need not rack your head for additional financial resources.

A car lease contract must also have a gap insurance. It is a feature that prevents you from draining all your finances. Some dealers who lease cars dont offer a gap insurance. This is okay as long as they include a gap waiver in their lease contract. This waiver declares that you are no longer responsible for gap charges that may occur when your leased car is wrecked.

When you get a gap insurance, determine how much is offered in the gap policy. You should also know how much will be added to your monthly bill. A gap insurance, for it to be recognized, must be accompanied with comprehensive insurance policies that cover collision.

Sometimes, a gap insurance may no longer be needed if the terms in your regular auto insurance policy indicated that the company will pay off the full amount you owed from the car loan lender

Car Gap Insurance

Most of us know that a new or used car will depreciate by about twenty percent the minute we drive it off the lot. So unless you put 20% down on your auto loan, you stand to owe considerably more than the value of your car for quite some time. If you buy a moderately priced car of $20,000, then your loan could be for $4,000 more than the price your vehicle would be valued at. Cars are getting more expensive, and many of us are taking out loans for one hundred percent of the value of the loan!

However most insurance companies consider the value of your car to be your book value, and not your loan value. This may seem unfair since your loan may require you to keep comprehensive insurance! However, if you car is wrecked or stolen within the first year, and your insurance only reimburses you for book value, you could owe thousands of dollars on a car that you cannot drive. You will still be responsible for the balance of the loan no matter what amount your inssurance company pays if they choose to total your car.

To protect yourself against an insurance company decision to total your car, you should consider buying car gap insurance. This type of insurance will pay off the balance of your auto loan. However car dealers often charge $500 – $700 for this type of insurance. You do not have to buy auto gap insurance at the dealer! You can buy the very same sort of gap insurance online and direct for less than $300.

Gap insurance is available in the US, UK, and other countries. As cars get more expensive, people finance larger percentages of their auto purchases, and often finance 100%, so gap insurance is becoming a very popular option. If you want to protect one of your most expensive investments, you should consider automobile gap insurance.

Do I need Gap  for my Car Loan?

Do you realize how much you are at risk financially if you wreck your car or it gets stolen? Your auto insurance policy might not provide all the financial protection you need, if the value of your car is less than the balance of your auto loan. Gap coverage is designed to cover the difference between the value of your car when it was lost and the balance of your car loan.

This is also called Negative Equity. Having to continue to pay off your car loan every month, when you dont even have your car anymore is probably not what you had in mind when you bought it.

Lets say you lost your car in a hurricane or other disaster, one year after you purchased your car: Now lets say you still owe $20,000 on your auto loan and your deductible is $500. Lets also say your car was worth $15,000 at the time you lost it. The insurance company pays you $14,500. Then your Negative Equity or Gap is $5,500.

Gap Protection isn’t really insurance, its a Debt Cancellation Agreement. You could call it a waiver of the part of your auto loan contract that requires you to pay the difference between the value of your car and the amount still owed on your car loan. There are a few states that do consider Gap Protection a form of insurance, but most states do not.

Is Gap Protection for you? Talk to the person considering your auto loan. Car buyers who are putting little or no money down on a car may need Gap Protection. If you are transferring the balance of previous car loans into the current car loan or taking out an extended car loan like a 60 month loan you may need the extra protection. Any car buyer who will owe more than their car is worth needs Gap Protection.

You have to take figure out the expected depreciation on the car you are buying and the rate of equity accumulation through your auto loan. This will help you figure how big a gap you’ll have and for how long.

Some lenders or leasing companies include the coverage in the agreement for the their own protection. This is common in lease contracts. The decision to buy gap coverage is easy. Deciding who to buy it from is much more difficult.

You can get Gap Coverage for your car loan from your Credit Union or another lender, online sellers of gap protection, or your auto insurance company. Each option is different, so read on before you decide on an option.

On the Internet, its easy to explore these options. You can go to your favorite search engine like google or yahoo and use the keywords gap protection or auto loan gap coverage. Make sure that you check out any company you find on the web before you give them your credit card information. You don’t want to end up with a provider that wont be there to help you cover the gap in your car loan if something happens.

Your Auto Insurance Carrier: Not all insurance companies carry gap protection for your car loan. Check with your agent. Check to see if they already included gap protection in your car loan and how much coverage they gave you. You may need more than they offer. The cost of gap protection is relative to the value of your car. The more expensive the car, the more it will cost, and the more coverage you need.

Also, very important to keep in mind. Your insurance company or other provider will continue to bill you for gap protection every month. Its up to you to calculate and decide when you no longer need it. In other words you need to know when you will be out of the hole. You need to know when there is no longer a gap between the value of your car and the amount you owe on your car loan.

The Automobile Dealer or whoever gave you your car loan is another source for buying gap protection. This is done at the time you get your car loan so bring it up right away if you choose this option. Some lenders may let you purchase it later, but its best if you buy it when getting your loan. As soon as you drive the car off the lot, it becomes a used car.

The cost is normally a one-time charge, typically the same set price for all customers buying the same coverage. Buyers may roll the fee into the total loan amount and include it in the monthly loan payments. Dealerships usually do not have the best rate for gap protection. You may want to choose another option. The average price for gap protection through auto dealers is about $500. You may be able to get the same protection for your car loan through your credit union or bank for as low as $250.

Make sure your gap protection also covers the deductible. Look for other features such as automobile replacement or money towards a new car in the event something happens. So don’t let just price be your guide when choosing who to buy gap protection from.

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