Having car indemnity is a necessity for those who owns a car and those who doesn’t own a car but still driving one. It is a necessity that must not be taken for granted because it is ordered by the law. As we all know, auto premiums are mostly not affordable for people of today’s economy. Thanks to the growing competition of auto providers, at some states the average auto premiums are declining.
Auto insurance companies offer a several different types of coverage. These includes Collision, Comprehensive, Liability, Uninsured/Underinsured and loan/lease pay-off also known as GAP.
This article will be focusing on the last mentioned coverage which is the GAP insurance.
The activity of the market today is indeed of a fast-pacing. A commodity that costs $30,000 today will lose certain percentage of its value after a couple of months. This is one reason why the loan/lease pay-off or GAP insurance was created. Another factor that caused the birth of this insurance coverage is the rocketing price of cars. Moreover longer term appropriated with auto loans plus the wide-spreading of the popularity of leasing are also pushing factors for the existence of GAP coverage.
If there is a gap between the actual value of the car and the amount of money owed from finance company, the GAP coverage protects the consumer. To make a clearer view of what GAP can do let us consider the following example.
You purchased a car for $30,000 and started making payments for $600 monthly based on a 6% interest rate. Unfortunately one day, you encounter an accident. Luckily you are not hurt but unfortunately for your car, it got totally damaged.
You informed your provider about what happened and informed you that the current value of your car is $25,000 only. With just a few months your car value decreased thus the amount when you purchased the car is now incongruent with the price your company is willing to give.
The problem is that the financial company to which you borrowed the amount you used to purchase the car is demanding the $30,000 plus tax, interest and other fees. This then is incurring a gap of more than $5,000. This is what GAP coverage is for.
This is the importance of having GAP coverage as part of one’s policy or add-ons. Availing of this coverage however takes collision and comprehensive coverage as pre-requisites. The GAP insurance coverage closes the discrepancy between what the company is willing to pay and how much you owe to the finance company.