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Gap Insurance

Auto insurance gets you financially covered but gap insurance takes it to another level. When you purchase a car, the next best thing to do is to get it insured.

Gap Insurance

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Moreover, it is very necessary to include all the necessary packages like collision and comprehensive coverage in your car insurance policy. Now, a lot of great companies sell affordable car insurance policies.

However, an alternative is if you had your car on loan or on a lease, gap insurance becomes the next best thing you can do for yourself. Also, you can purchase gap insurance from the seller or from a third-party lender, who factors it into your financing.  

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What is Gap insurance?

Gap insurance, which can also be called guaranteed auto protection is an optional kind of insurance policy that is designed to bridge the gap in your auto insurance coverage after an accident.

That is, gap insurance helps you pay for any shortfall between what your auto insurer pays and the actual cash value of the vehicle in question.

Although this type of insurance is optional, yet, it is highly recommended. It protects against the cost of repairs for missing or destroyed parts or if your car is totaled, and covers the difference between what your insurance company pays and what you owe in loan.

When can you get gap insurance?

First and foremost, this insurance comes in handy when you owe a loan on your car while you file a claim for a destroyed or totaled car. Also, gap insurance becomes a necessity and especially helpful if you financed your car.

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In essence, if you’re in an accident, your insurance company will only pay up to the amount of the loan. But if you have gap insurance, the amount the insurer pays will be equal to the difference between what you still owe on the car and the amount your insurance company will pay.

However, you stop needing your gap when what you owe in a loan no longer exceeds your car’s value. Furthermore, lenders can ask people that come to lease cars for this coverage.

For those that paid a lower down payment for their car purchase. So, if you paid anything less than 20% of the down payment, it will be of interest to get this coverage.

What does gap insurance cover?

To continue, your car insurance in all its totality may not pay for the loan you have on your car in the event of destruction, theft, or accident. But this is the specialty of gap insurance. Moreover, you only qualify for this if you include collision and comprehensive coverage in your car policy.

Your gap insurance product will protect you from any out-of-pocket expenses you may incur if you purchased your car on a loan or lease and you had issues with the car.

It covers the actual value of your car when you have a gap between what you owe and what the car is worth, in times of financial emergency.

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Difference between the GAP and car insurance coverage

Before you buy a GAP insurance policy know this. You should understand the difference between GAP insurance and car insurance. So that it will help you to understand what is protected in times of car financial emergency or when you want to file a claim. 

As a matter of fact, it is an auto policy. It pays off the difference between the loan balance of your vehicle and the amount it actually sells for. That is, it is only designed to pay off what the car is actually worth, not what you owe on it. And will cover the difference between your car loan value and your deductible.

Meanwhile, car insurance is a coverage plan you buy. This type of coverage protects you from any financial loss in the event of an accident or theft.

How GAP insurance works

Basically, you can think of this insurance as supplemental coverage that protects you when your vehicle is totaled or stolen. 

And it works by paying up the difference between the insurance settlement and the outstanding balance on your loan or lease contract.

Again, this is only effective for cars you bought within 3 years. Then, you have to check with your insurance provider to know what they require of you and your car.

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Take, for example, you purchased a car for $40,000. As time flies, your car depreciates at $30,000. But your loan is still at $35,000. If you experience a car emergency or you total your car, your gap company will pay you $35,000 excluding your deductibles.

How to buy Gap insurance

So, Gap insurance isn’t something you buy from a store. You have to purchase it from the original lender or leasing company. Even if your vehicle is declared a total loss your coverage will cover the remaining balance on your loan or lease. However, it may be higher than the regular car insurance companies.

On the other hand, you can ask your car insurance company to include your guaranteed auto protection into your car insurance package.

More so, you can purchase this insurance from a third party that specializes in selling just this coverage. You can purchase from this route online.

Cost

The cost of this coverage solely lies on where ever you purchased it from. Certainly, some companies charge higher than others and loan companies generally charge higher than insurance companies. So, get prices online and check out the gap direct companies for an affordable cost.

Pros

  • Affordable
  • Added coverage
  • Protection from depreciation
  • Easy to purchase

Cons

  • Not always necessary
  • Does not cover much
  • Has some limits

Top gap companies

  • The Travelers companies
  • Progressive
  • Liberty Mutual
  • Esurance
  • State Farm
  • Kemper
  • Nationwide
  • Allstate
  • American Family Insurance
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