Getting into a car accident is always stressful. Especially the property damage claim. But it can be even more stressful when your car is totaled and
you owe more than what the insurance company is willing to pay. Imagine some lazy inattentive driver, runs into you, ruining your day and you end up making payments for a car that is in the junkyard. C.Y.A. get GAP Insurance!
WHY GAP INSURANCE
Guaranteed Auto Protection, also known as GAP Insurance, is an insurance policy you can choose to purchase with your standard insurance policy when buying a vehicle. When in an accident, standard auto insurance policies will only cover the depreciated value, also known as cash value, of your vehicle at the time of a claim. This means that if you owe more than what your car is worth, you could be forced to pay thousands of dollars to pay off a car that you can no longer use.
This is where GAP insurance comes in. GAP insurance is an optional coverage that will help pay the difference between what your insurance will pay and what you owe on the vehicle. GAP insurance is most commonly marketed to buyers of new vehicles, as new cars will immediately drop in value once driven off the lot. However, GAP coverage is also a must when buying a used car.
If you’re in one of the following situations, you should consider GAP insurance:
Your car’s make and model depreciates (loses value) quickly;
You have spread your car loan payments over a long period of time;
You plan to put a lot of miles on your vehicle; or
You made a small down payment or no down payment at all.
Let’s say you purchase a vehicle for $25,000 and finance it over a five-year period. Soon after, you are involved in a car accident and your car was totaled. At the time of the accident, your car’s cash value is $19,000, but you still owe $23,000. Your car insurance will offer you a settlement of $19,000 (minus any deductible) for your vehicle. However, you still owe $4,000 to pay off the remaining cost of the vehicle. This is where GAP insurance is necessary, as it will help close the gap between your settlement and what you owe. This means your GAP insurance will pay the $4,000, the difference between your settlement with your insurance company and what you still owe on your vehicle.
There are a few ways to purchase GAP insurance for your car. If you are buying a used car and financing the purchase price, you can ask the loan company if they offer GAP insurance that you can pay through the loan. Dealerships will often offer GAP insurance as well; however, they are typically more expensive. To ensure you’re getting the best price, it is important to compare quotes from several companies.
Although it may be difficult to add an additional expense when buying a car, GAP insurance could save you a lot of headaches in the future. If you’re at risk of owing more than what your car is worth, GAP insurance is a worthwhile investment.
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