These days, getting a good car insurance coverage no longer seems sufficient protection from possible auto theft or from any type of vehicular accident. Auto insurance nowadays needs to be complemented by other related protection coverage types. This is where you may want to consider applying for GAP insurance.
The word “gap” in GAP insurance is actually an acronym for Guaranteed Asset Protection. As its name suggests, this insurance variation seeks to extend financial help to vehicle owners who encounter road mishaps.
A common question well worth asking is, “Why do I need gap policy if I already have auto insurance?” Well, basically, gap policy will only be applicable when there is a “missing amount” once your car value is deducted from all unpaid auto loan balance.
Like majority of vehicle owners, you are probably not informed that when taking out a new car from the factory after getting your loan is approved, there is immediate 20% vehicle value depreciation. Hence, the longer cars stay in their showrooms, the greater likelihood that their value will depreciate.
If by some unfortunate circumstance, these same cars encounter road accidents, insurers will most likely offer compensation based only on the current market value of these cars.
For further explanation, take a look at this scenario:
You recently bought a $25,000 car, and after settling the $2,500 down-payment (10% of the total price), your remaining balance will only be $22,500. However, following our explanation above, the market value of your vehicle will go down by about $20,000 (20% of the price) after you drive it out of the dealership factory. There is now this $2,500 deficit in your hands while trying not to get yourself and the newly-purchased automobile in an accident. Imagine, however, if an accident does occur after two months. The market value of your newly-bought car might have further gone down, and your insurer may only get to extend a measly amount as coverage.
With GAP insurance, you assure yourself of all needed financial assistance. In addition, with a gap policy in your hands, you safeguard yourself from falling prey to unfair trade practices among insurance companies and car dealers, which sometimes include omitting this insurance type in their vehicle negotiations with you.
Strangely, GAP insurance is quite inexpensive and should prove valuable in case insurance coverage is not enough to offset the damage that can be incurred in an accident. Still, getting protected by this policy should come simultaneously with your vehicle purchase. Any delay in GAP application will mean having fewer reasons for getting one.