When you get yourself your dream car, you take all the necessary measures to insure it. You buy liability, comprehensive, and collision coverage, atleast. Now, imagine that somehow your new car, that’s already on loan, gets totaled. What would you do? Do you think your basic insurance coverages are going to pay your lender? You cannot be more wrong! These misconceptions generate the need to know all about GAP Car Insurance.
If you get in a pretty bad car accident, God forbid, you must also require health insurance to cover your meds. If you wouldn’t have made an Aetna vs. United Healthcare comparison, then you would be paying those hospital bills from your own pocket. After you have taken care of your health, if you didn’t have GAP car insurance for your totaled car, then you would just be sorry for yourself.
So, what exactly is this GAP Insurance 101, and why is it so important? Does everybody need it? How exactly does GAP help? Can you get GAP insurance or defensive driving with GEICO? Well, you will have all your answers below. Just stick with me by the end of this article, and you will understand the importance of GAP insurance.
What is GAP Insurance 101?
GAP is Guaranteed Asset Protection insurance. “GAP insurance is an optional coverage that will help you pay the difference between how much money you owe to your lender for your car and how much money it is worth.” Basically, it will pay your lender the amount of money your insurer didn’t.
Understanding GAP insurance 101 will help you understand whether you need the insurance or not. It is usually used by new car buyers who have their cars on loan. In case your car is totaled or stolen, you would still be required to pay the lender the loan you took from them. And in situations like these, your car is worth a lot less than your loan. So, your insurer doesn’t pay for the extra money you owe to your lender. This is where GAP insurance comes in shining armor.
GAP Insurance Pays you when your Leased-Car is Totaled
There’s a big misunderstanding among people that their insurers will pay them fully if their car gets totaled. If you have collision, comprehensive, and even liability coverages, and your loaned car gets totaled or stolen, your insurer isn’t going to pay for the loan that you owe to your lender.
Why? Because no insurance company is required to clear your loan balance. At the most, your insurance company will pay you the minimum cost of your car. And it is at this precise moment when GAP insurance will help you and cover future situations like these.
How Does GAP Insurance Work?
The loan of your car will always be more than the actual value of your car. As you pay your regular lender payments for the loan, the amount you owe will be gradually reduced. But your loan will be higher than your car’s original cost for a long time.
Let’s understand it more clearly with the help of an example. Suppose you buy a car with a $25,000 loan. In the first few months of buying the car, your car gets stolen or totaled. Here, you need to pay the loan and repair your car simultaneously. You go to your insurance company with the problem, and they are ready to help you. However, considering your $25,000 loan, they will only pay you the original amount based on the value of your car. They will pay you $20,000.
As I told you, your loan will always be higher than the value of your car, and since your insurance company is only liable to provide for your car’s value, there will be a little gap. Just like we have in this situation. But, even now, $5,000 is still due to your lender. That’s a huge amount of money you did not know you weren’t covered for. If you have GAP car insurance in these situations, then they will pay you this $5,000 here, and you won’t have any extra burden.
When do you Need GAP Insurance?
• When you have taken a car on loan for at least two years. During this time, you will owe more to the lender than the car’s actual price.
• When you have a car on lease.
• If you make less than a 20% down payment, then you should have GAP insurance.
• If your loan is for more than 60 months.
• If your vehicle depreciates faster than the regular vehicles.
I hope this article helped you to understand the basics of GAP insurance 101 and how you can use it to your benefit. Many people who don’t know about GAP end up paying the bills from their own pockets. If you don’t want that to happen, then contact your insurance company today!