Making Sense of GAP Auto Insurance
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UPDATED: Feb 15, 2012
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GAP auto insurance may seem like one of those expenses that isn’t worth it but most drivers feel that way about all type of car insurance. Of course, when you need to file a claim you find out just how important and useful that coverage is. The only way to understand the importance of GAP car insurance though is to get a basic comprehension of what it is. The best example is this:
- If you buy a new car and finance it the minute you drive it off the lot the car is at risk for being in an accident. You get your auto insurance in place but nothing more than the basic minimum coverage required for your car. This is all you need, or so you think. A week later, you have an accident. Luckily, you are alright but the car is severely damaged.
In fact, the vehicle is so badly damaged the insurance company decides it would be less expensive to “total it out” then repair it. Then you get the bad news and rude awakening. Without GAP auto insurance, you still have to pay a lot of this out of your own pocket. The reason for this is that the car is covered for the amount it is valued at. When you finance a new car, you are paying the price and interest on it, which is always a higher amount than the value. So this could be thousands of dollars from your own pocket.
While many people think GAP coverage means it is covering the gaps in your policy where standard insurance doesn’t cover, this is not actually what it means. GAP actually stands for Guaranteed Auto Protection. It does however take care of those gaps your regular policy may leave you stranded with.
Who needs it anyway?
Not sure if you need GAP auto insurance? Well for one thing if your car is financed your lender may require it. If that is the case, the decision is pretty much made for you. In fact, it is a good idea to get your rate quotes for car insurance for your new car before you even sign on the dotted line and make that car yours. Too many drivers assume the rates will be reasonable and drive off the lot. Once they get home and try to set up a new policy however, the story is completely different. It often turns out to get what is needed to truly cover your car your auto insurance premium rate could end up being almost as much as the car payment itself per month.
So think about whether you need GAP coverage by considering these things:
- It does not just work for financed cars – it also covers leased cars. If you plan on financing a new car or leasing one more, than most likely GAP insurance coverage is right for you.
- If you bought a financed car and brought in a trade that was “upside down”, you would probably be a good candidate for GAP coverage. An upside down trade means that you bring in a car that you still owe on to try to get another new car. What happens is that what is owed on the previous car gets rolled over into the new car loan. This makes the loan amount much greater than the value of the single car being financed.
- If you have less than 20 percent to put down on your new car for the loan, the amount of the loan versus the value of the vehicle will be quite askew. Once again, it means your loan amount will greatly exceed that of the true value of the car. In addition, if you are financing a vehicle for 60 months or longer you are probably looking at the same situation here too.
- If you drive more than 15,000 miles a year you may need to get GAP auto insurance coverage. The reason for this is that you are quickly depreciating the value of the car. Even if when you got the loan the amount wasn’t that much greater than the value of the car, if you quickly depreciate the value this throws that balance off.
So now, you probably know whether you need it. The important thing to do now is determine how much your rates could be. With nothing more than your zip code to get started you can get your quotes. Find out today how much you could be saving with your GAP auto insurance premium rates.