When it comes to their vehicles, car owners normally take great care. Everything from routine maintenance to washing the car, to operating it safely on the roadways. But sometimes, even the greatest care may not be enough. There are many other drivers on the road, therefore there is a significant possibility of encountering an accident of some kind. Thus, combining your care with a car insurance policy is the best option.
Guaranteed asset protection, or GAP insurance, is an add-on for a car insurance policy that works best when purchased alongside collision or comprehensive coverage. If your car is stolen or totaled in an accident, GAP insurance is useful. When your loan amount or lease payment exceeds the car value when it is stolen or totaled, coverage is provided.
If you are still thinking, “should I buy gap insurance?”, here is everything you need to know.
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Is It Necessary To Get Gap Insurance, And If So, Why?
Many car lenders and leasing companies insist that you have collision and comprehensive coverage on your insurance policy for as long as you owe money.
It is recommended that gap insurance be purchased in addition to either collision or comprehensive insurance. In the event of a valid claim, your collision and comprehensive insurance will contribute to the cost of replacing your stolen or written-off car up to the policy limits. The Insurance Institute for Highway Safety (IIHS) reports that the moment you drive a brand-new car off the lot, its value begins to drop. And the average car loses 20% of its value in the first year of its purchase.
How Does The Gap Insurance Work?
The maximum claim payment from your insurer in the event that your car is totaled in an incident covered by collision or comprehensive insurance is equal to the car’s pre-accident worth.
Gap insurance, which is also known as loan or lease coverage, pays the difference between your debt and the value of a totaled or stolen car.
An example of a gap insurance claim is as follows:
If your vehicle is stolen or totaled in an accident protected by your car insurance, you can file a claim under either the collision or comprehensive insurance section of your policy.
Your car insurance company will reimburse you for the actual cash value (ACV) of your vehicle, minus your deductible. For example, your insurance payment would be $18,500 if your car is priced at $18,000 and you have a deductible of $500.
Gap insurance will cover the difference if your lease or loan amount is more than the amount covered by your car insurance. For example, if you owe $15,000 and your ACV is $17,500 your gap insurance will pay $3,500 to cover the difference.
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Pros And Cons Of GAP Insurance
When necessary, gap insurance can provide a high level of protection, but it comes at an additional expense that should be taken into account. Here are some factors to consider if you have the option to buy gap insurance:
- In the event of an accident, gap insurance allows you to get away with fewer debts.
- You might be able to buy a more expensive car with less concern.
- The annual expense is reasonable, usually $100 or less.
- The difference between your debt and the car’s value will eventually narrow to the point where owning it might not be worthwhile.
- It is an additional cost on top of the standard maintenance and monthly payments.
- It may not be required if you initially pay a low price.
Gap insurance is generally an optional insurance product unless needed by the conditions of your lease or loan agreement. However, if you recently spent money on a new car, it might provide you with a great deal of peace of mind.