Many car dealers nationwide offer their buyers an opportunity to purchase GAP insurance coverage together with their brand new vehicle. Sometimes, finance managers even include it in the contract without notifying an owner primarily because they think it is something car owners cannot do without. However, is it really that important?
First, it would be beneficial to have a layman’s definition of the term GAP insurance coverage. Taking out all the technical explanations, GAP insurance is basically an additional coverage with a special purpose – it pays for the difference between the vehicle’s market value and the amount the owner still owes on the car dealer. You would probably ask why is there a need to have an additional policy if a car owner already has full coverage auto insurance. Here is the reason.
Most car owners are unaware that their brand new car’s value depreciates by up to 20% the moment it is driven out of a dealership. That means a car’s value gets lower and lower as days and weeks go by. The problem is that a car owner has just started paying for the car but its price has already depreciated to a value way below the amount he has already paid. It does not seem so alarming at first; however, it will surely be when an accident comes.
If a car owner gets into an accident in that particular vehicle, it will cause plenty of problems. The insurance company will only pay for the car’s market value which has greatly depreciated since it was purchased from a car dealer. Because it is still necessary to pay for the car, an insurer’s payment would just go directly to the auto loan. However, because a vehicle’s value has greatly reduced, payment from an insurance provider will not be enough to pay for the car loan. In this scenario, a vehicle owner will need another policy to bridge the “gap,” and that is GAP insurance coverage.
Although GAP insurance is strongly recommended for a brand new vehicle, there are some instances where it is possible to do without it:
1. If a car owner has paid a large amount of down payment for the automobile financed.
2. If there is a manufacturer’s rebate that would reduce the amount financed.
3. If more than half the value of the vehicle when the accident occurred has already been paid for.
Remember that there is no harm in asking. Ask car dealers and insurance companies whether they offer GAP insurance coverage with discounts. Similar to auto insurance quotes, it is a driver’s job to compare offers to get the cheapest GAP premiums.