You are probably thinking that you are already secure just by having automobile insurance for your new car, and you would not have to worry in case your car gets totaled in an accident or gets stolen. Sad to say this, but this is untrue. You will need additional help from other sources, and that is, GAP insurance.
Many are unfamiliar with the term GAP insurance mainly because it is seldom talked about in deals. This acronym GAP, stands for Guaranteed Asset Protection, its task is to provide financial assistance by addressing the difference between “market value” of your car, and remaining financial obligation on your car loan. This means that you should get this insurance immediately after purchasing a car so the market value of your car is still high, thus, in case of incidents like theft or car accidents you can still get high compensation.
Most car owners are unaware that at the moment a newly-bought car leaves a dealership, its market value depreciates by almost 20%. The longer it stays with them, the lower its price gets. By the time this same car gets totaled in an accident, or gets stolen, the company would only pay them the market price of the car. By obtaining GAP insurance, they do not only secure chances of getting their car replaced, they also prevent car dealers and insurance companies from taking advantage of them.
The good thing about this insurance is its inexpensive value. Despite of this, those few hundred dollars will not be wasted because they will compensate additional financial assistance in case your insurance company does not cover you enough. However, the setback is you should purchase it as soon as possible, or like stated earlier, immediately after buying a car. This is because the longer you wait before applying for GAP, the fewer your reasons of getting one. By that time, your car’s market value would be approximately equal to what you still owe on it.
Here is a sample scenario:
You bought a car for $25,000, with a 10% down-payment which is $2,500 so you have a remaining balance of $22,500. By the time a car gets out of a dealer’s garage, its market value automatically goes down to approximately $20,000. That means you are in a deficit of about $2,500 and you are only on the first day. Imagine how your car’s market value can go down in the next weeks, and months. If you get GAP insurance immediately, you will be assured of additional financial assistance in case of unfortunate instances.