Gap insurance provides the owner protection against depreciation loss of the vehicle against what is owed. It is the difference between actual cash value of a vehicle and the balance the owner still owes on the car loan, lease etc. The insurance covers the loan amount that is the difference between the value of the car and what is covered by the insurance policy. GAP insurance could be important for a few car owners, and a waste of money for some others. Whether you buy a vehicle from cars auction online or a local garage, you need to understand if there’s actually any benefit of GAP insurance before taking it. Read on to learn more about the insurance cover.
Why do you Need it?
If the vehicle you bought undergoes total loss after one year of purchase, you may owe more than the worth of the vehicle as the major amount of the payment made in last one year went to interest. This is where a GAP insurance would provide cover against the depreciation loss versus what you owe.
How it works?
A car insurance mostly pays the actual cash value of the vehicle, unless any other clause is specific in the cover. The insurance also doesn’t pay for what the owner owes on the car. A GAP insurance contributes to the financial stability of the insurance buyers. If the buyer has a bad credit, there is a chance that the insurance company may not provide any cover for the vehicle. When the loan terms are not good, there’s a need for GAP insurance to make the car insurance company feel secure about your purchase.
Who Needs GAP Insurance?
A GAP insurance is needed when:
- The interest rate on car loan is extremely high
- A new vehicle is purchased with low down payment
- When the car loan is extended to a period of five years or more
Final Words
If a total loss car accident leaves the owner with the scenario where the amount owed is higher than the worth of the vehicle, a GAP insurance becomes the savior. Any serious accident or theft puts you in the similar condition, where you might get into debt. You need GAP insurance if you believe that there could be a point when you won’t have the cash to cover the gap. If you are making a large down payment on car purchase, want car loan for 3 years of less or getting a good deal on the price of the car.
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