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To start with, GAP car insurance is generally something you may need if you are financing a new vehicle. There are other circumstances in which you may need a GAP auto insurance policy, but this is the most common scenario.
What car GAP insurance coverage does is protect you from being financially liable should your new car be stolen or wrecked and totaled out completely. Totaled out is usually when the damage to a vehicle is so severe it would be cheaper to replace it than to pay to repair it. In some cases, this can be even from something just cosmetic such as extreme hail damage. The difference comes in when you look at the amount of what your standard auto insurance policy values your car at and what you owe on it.
How This All Makes Sense
What you may be wondering is why you might need automobile GAP insurance. Almost any time you drive a new car off the lot, it depreciates immediately. What happens is the amount you owe on the car loan is much greater than what any car insurance policy provider would pay out in the event of your new car being totaled out or if it is stolen and not recovered. If there is a deficit in the two amounts, you are responsible for paying this amount.
In other words, the difference between what the car insurance company will pay and what you owe is still yours to cover. You will be paying this amount out of your own pocket even though you won’t have a new car, or any car, to drive. This amount can easily be thousands of dollars. The worst part is most people assume they have insurance coverage for this, but don’t actually have this coverage. Do not wait until it is too late to find out if you have all the coverage you need, especially on a financed car.
The majority of lenders for car loans require drivers to have GAP insurance on their policy. However if you do not have the proper amount of coverage, your lending institute may tack this type of policy coverage on without you realizing it. When you do find out, is at the end of your loan when you think you are done paying for the car.
That’s when you find out you still have a balance and that’s for paying off the extra GAP insurance coverage you should have had but didn’t. If a lender tacks on their insurance, it is always expensive and could leave you with a year or more of extra payments. In the case of automobile GAP insurance, it is better to be safe than sorry, and you should make sure you have the coverage you need.
Other Things to Realize about GAP
Of course GAP car insurance is important for more than just drivers who have a car loan that is more than the value of the car. For instance, if you bring in a trade-in for that new car and still owe on it, that extra amount rolls over into your new loan. In other words, the loan for your new car will pay off the old one and the new one creating a much larger loan amount than the value of the car you are driving.
If you have no trade in and also no down payment, you will probably also need to secure GAP auto insurance coverage. If you are taking out a car loan for more than 60 months, this may need to be part of your car insurance policy as well. Also, if you will be putting a great many miles on the car each year, it means you will rapidly be depreciating the value of the car. In this case, even if you started off with a narrow margin between value and loan amount, you are widening the gap. In this case, only GAP insurance can help.
There are other reasons a driver could need GAP auto insurance coverage. These are, however, the most common reasons to need it. Get quotes to protect yourself by supplying just your zip code for starters. You will be on your way to get cheap automobile GAP insurance right away.