Are you interested in GAP insurance? Well, people show no interest in it and the reason is unawareness. If you find someone with this policy, he should be the one, who selected it only due to the pressure implemented by the insurance agent.
Generally, the customers do not know much about GAP insurance and pay only due to the influence of the agents. So, here are the details that will help you understand GAP insurance, its pros and cons, and its impact on your overall insurance policy.
What is GAP Insurance?
Guaranteed Asset Protection (GAP) insurance is offered to you as a financial product from the general auto insurance companies when you purchase a brand new car. GAP insurance is that type of auto insurance, which helps you if your car has been stolen or totally written off. If you have no GAP insurance, you may experience a huge loss.
According to the insurance rules, the car insurance company will calculate the current value of the car and subtract it from the book price for determining the GAP insurance. The company will pay the current value to the financial institution if there are any pending amount, and you the difference. Is it looking wonderful? Yes, it is!
How does GAP insurance work?
Some people treat GAP and comprehensive insurance equally, however, both are different. When we talk about comprehensive insurance, it means that it cannot deal with the depreciation that is the main culprit in dropping the car value. It can drop your car price up to 60% in just three years and only GAP insurance cover it and can give you an opportunity to buy a new one immediately.
Let’s clear it with an example!
If the price of your brand new car is $15,000, the price will only be $6,000 just over three years. Now, if you have the comprehensive coverage, you will get the benefit against the current value of your car and that is only $6,000. GAP insurance helps you get the maximum out of this loss, but it depends on GAP insurance policy type.
Remember that GAP insurance has not been designed for older and inexpensive cars. The reason is their low depreciation rates.
When is GAP Insurance useful?
The GAP insurance is helpful when:
- You pay a huge amount in the shape of interest for the car, own it and handle the highest rates of depreciation.
- If you have paid a small amount as a down payment, you owed more than the car worth as well.
- In some situations, the buyer is slow in paying the debt off or he needs to pay a huge amount at the end of the period due to financial arrangements.
- If you have a signed contract hire deal for a long time and you have lost your car. Now, you need to end up this contract and hire company wants more than the coverage that has been offered to you by the insurance company.
- You have concerns about replacing the existing car with the new one in the future.
When is GAP Insurance not useful?
- If you are the first owner and the age of the car is less than 12 months, GAP insurance is not useful. The reason is comprehensive car insurance. This policy offers the replacement of a new car within the first 12 months, but you must read all the restrictions given in terms and conditions. There are some policies that do not help you in case of car theft or in those accidents where you are at fault.
- Sometimes, the finance agreement covers everything related to the book and the actual value of the car. Here, you need not buy the GAP insurance.
- If you can afford the difference between the book and the actual value of the car before writing-off, you have no need to pay the extra amount in the form of GAP insurance premium.
When does GAP Insurance not cover?
GAP Insurance does not help you cover in the following situations:
- If your major insurance company has deducted some amount because you have not paid any of their premiums or salvage value and showed contributory negligence, GAP Insurance will not cover you.
- GAP Insurance does not cover voluntary or higher excesses. You need another insurance if you want to cover these amounts.
- Non-standard extras like speakers are not covered under GAP insurance.
- GAP insurance will not cover road fund license and warranty charges of any add-on.
- GAP Insurance helps you only if your car has totally been written off or is unrecoverable.
- You will get the coverage amount only if all the processes have been completed successfully. Until then, you need to bear the expenses by yourself.
Overall, the depreciation rates of the vehicles are one of the highest in the world. These high rates depreciate the car value drastically and sometimes, even the insurance settlements cannot help the car owners to cover it. GAP insurance is the only solution to control the damages of vehicle depreciation. Along with that, when you face car theft or have lost your vehicle totally, GAP insurance covers you and helps you manage the financial crisis tactfully.