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Gap Insurance Prevents Negative Equity


Many drivers think that they are fully protected with comprehensive insurance. In most cases however, they find out too late that it is not so. This is because in reality, cars immediately depreciate by at least 20% as soon as it is taken out of the dealer’s office for use. If something happens to this newly bought car, the comprehensive insurance will not be able to cover for this 20% depreciated value. For the car owner, this is an instant loss.

Guaranteed Asset Protection Insurance, otherwise known as gap insurance, is the right type of insurance that can cover for the said loss. As its name alone implies, it guarantees full protection on your asset (the car) therefore including the depreciated value.

To explain further how this insurance works, here is a scenario. You bought a car for $20,000. Two years later it figures in accident and your insurer writes off your vehicle. You are surprised to learn that they are only offering $10,000 compensation or settlement pay. The depreciated value of $10,000 is charged as a loss. With gap insurance, your insurer would have settled the full amount of $20,000 as was the original purchase price of your car. It is that simple.

To many drivers, they see gap insurance as just a way for insurance companies to get more cash from its clients. Insurers will have to charge higher premiums for this type of insurance, after all. Then again, it should not be seen as a disadvantage neither a money-making scheme on the part of the dealers. Instead, think of it as something that will give you more protection especially if you are the type who buys brand new rather than secondhand cars.

At first glance, it might seem like a money-making scheme, but insurance companies have to make allowances for bigger expenses in the future should anything happen to your car. They calculate for these risks as they compute for gap insurance premiums. However, this should not discourage you at once because if you will just look around, you will find that there are so many insurance companies offering this type of insurance. Out of so many choices, you are bound to find one offer that exactly fits your preferences without having to pay so much for premiums.

Gap insurance is a good way to prevent negative equity. The rate of road accidents today is around 500 cars daily. There is no guarantee that you will be kept 100% safe on the road no matter how defensive and careful you are. There is only 100% guarantee that there is an insurance that will make certain you recover fully your losses if something happens to your car.