If you bought a vehicle and have met an accident shortly after purchase, are you sure that your full coverage car policy will shoulder all the expenses? Many are unaware that the value of your automobile automatically goes down by as much as 30% the moment it is driven out of a dealer’s shop.
For instance, you paid $5000 for the total $25,000 price of the car, but you encountered an accident a month later where your vehicle was totaled. Unfortunately, even if you have full coverage, you are still left to pay a large sum of money. This is because your vehicle’s fair market value has gone down by as much as 30% and your insurer will only pay around 70% of your car’s actual purchase price. Remember that you have not yet fully paid the auto, so that means all the “help” from your insurer will go to your car loan and you still have to get the 30% of your remaining balance from your pocket. What’s worse is that you are paying for a vehicle you do not own anymore. In the car industry, this is known as an “upside-down” situation.
This is where help comes in. It is definitely recommended for new car owners to get GAP insurance shortly after purchasing a vehicle. This will insure that the “gap” between the car’s fair market price and the loan amount you still owe on the vehicle is covered. However, not all insurance companies and auto dealers offer GAP insurance.
You may also get GAP from other companies other than the one covering your car. To understand more about this coverage, here are some frequently asked questions:
What is GAP insurance? It is a supplementary policy that covers the difference between market price of a totaled car and money an owner still owes in his car loan. It is an effective way to save you from future worries when it comes to finances.
Is GAP required for all vehicles? No. It is completely optional.
Can I get this insurance for older vehicles? GAP is available on new, refinanced and used cars, SUV’s and trucks financed or purchased within the past 12 months.
Does my car automatically come with GAP insurance? Most of the time, GAP comes with the lease rate, but do not assume it is since it is a different transaction altogether.
Where can I buy it? Your car dealer often offers this insurance, but usually at a higher price. You may search for insurance companies that specialize on GAP so you would not have any problems later.