What is GAP insurance and how does it work? GAP auto coverage, like other types of insurance, is not necessarily required. That means you can purchase a car and get a basic auto policy without getting GAP. However, this will put you at risk of losing a substantial amount of money in case you get involved in a car accident.
GAP car insurance takes care of the “gap” between market price of the vehicle and amount of money an owner still owes on the car dealer. You might ask, aren’t these two the same? It used to be. After driving a car off a car dealership its value depreciates greatly, and continues to depreciate even further as days, weeks, and months pass by. Hence, by the time you get involved in an accident a few months after your purchase, a vehicle’s value will be way below the amount you still owe on it. Even if you have full coverage auto insurance, it will only cover expenses based on the market value of your car. You will be left paying thousands of dollars to your dealer, and worse, you are paying for a vehicle you do not own anymore. Such a terrible experience isn’t it? That is why you need GAP insurance to take care of that amount to keep those worries away.
Before you purchase this coverage, be aware that not all GAP policies offer the same coverage. For instance, some GAP insurance policies will cover losses caused by theft and accidents but not all. Be sure you clarify what kind of coverage your GAP will provide. If it does not cover you enough, then it would be much better to not purchase a policy in the first place.
Another thing is that most GAP car policies do not provide coverage for vehicles which are more than one year old. This is because the longer you wait before buying GAP, the fewer your reasons for getting it. Usually, the negative equity between market price and amount owed becomes smaller and smaller so there is no more reason to have GAP coverage.
GAP insurance can be purchased right after you bought the vehicle, though it is strongly recommended not to get GAP coverage from the same car dealer where you got your vehicle. There are organizations and companies who specialize in providing GAP coverage so make sure you get this policy from them. Although GAP car insurance is relatively cheap compared to other policies, the benefits it provides are very important to secure your finances just in case.