Insurance is meant to fulfill many needs: it must satisfy the laws of the state of residence. It must protect the property owner’s possessions and their assets in the event of a loss or worse, in the case of a possible lawsuit. And finally, it must protect any lien holder’s interests in that property until it has been fully paid off. In some cases, GAP insurance might be a vital need to ensure that all of those needs have been met.
When Might You Need GAP Insurance?
If you have a loan on your car, especially one with a larger balance, you might need a GAP insurance policy. Here are the questions to ask yourself about GAP insurance:
- Do you know the actual value of your vehicle at this moment? That is different from how much you need the car or the price you would take if you were going to sell it. Cash value is determined via certain resources and only takes actual physical condition into account.
- How much is the payoff for your current loan balance? Those two numbers are often very different from one another.
- If you have a total loss, how much more will you have to continue paying on a loan for a vehicle that you are no longer able to drive?
Limits for GAP Insurance
Like other types of insurance, GAP insurance policies have some limits. Understanding these limits is vitally important:
- GAP insurance coverage is only available in certain areas.
- It only covers loans from structured, approved sources like a bank or auto financing company. If you have a loan from a family member, there is no GAP insurance policy that you can use to provide the same type of protection.
- You still have to carry your regular insurance as required by your state.
- There are a large number of things that the GAP insurance policy will not cover.
- It will not cover commercial vehicles
What GAP Insurance Covers
First, this is what a GAP insurance policy will actually cover in the event of a covered loss:
- The GAP policy will cover the difference between your car’s current cash value and the outstanding balance on the loan.
- It may also be used to pay your regular insurance’s policy deductible.
What GAP Insurance Will Not Cover: The list of things that the policy will not cover is actually longer. These include:
- Repairs and maintenance to your car if it breaks down.
- A rental car while your car is in the shop for any reason.
- The value of the car or the balance of your loan if your car is repossessed.
- Any carry over balances on the loan that you have.
- Losses as the result of illegal behaviors on the part of the driver such as racing, etc.
- Personal belongings that in the vehicle at the time of the loss or event.
- Specialized equipment that has been added to the vehicle. This can include stereo systems, alarms and other items.
- A down payment for a new car
Are There Other Options for Your Needs Beyond the GAP Insurance?
If you cannot get GAP insurance in your area or do not qualify for it by your current situation, there are other options that you can use. These include:
- A personal umbrella policy that can be written to extend to your vehicle.
- An increased amount of insurance on your car. There may be limits to how much insurance you can put on your vehicle, determined by its value.
More Facts to Know About GAP Insurance
In addition to the limits for coverage, there are also a number of other things that you should consider about GAP insurance. These include:
- GAP insurance is available in nearly every state with the exception of: Connecticut, Louisiana, Nevada, Virginia and Washington.
- You are restricted to the time when you can buy GAP insurance to the first year after purchase unless you refinance the loan after that period. You can then buy GAP insurance in that year.
- GAP insurance is limited to a specific loan-it cannot be transferred to a new loan.
Before buying GAP insurance policies, it is important to do your research and to shop around for the best quotes. There are a number of companies that claim they are selling these types of policies but are not. GAP insurance is typically not that expensive but that is simply because of the limits of what it covers and the number of restrictions that it involves.