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Understanding the characteristics of gap insurance

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Guaranteed Auto Protection (GAP) insurance plays a vital role when an unpaid auto loan is pending. During the initial years, your car continues to be brand new, and a large portion of loan amount is due. In such a scenario, if your car is lost or damaged; its net worth reduces drastically. The difference between the repayment of loan and your vehicle’s totalled cost is defined by GAP insurance. It is a significant insurance when your car loan debt still needs to be paid and you may fear a situation of loosing you car.

How does GAP insurance works?

Guaranteed Auto Protection (GAP) enables car owners to obtain coverage against the depreciation of the vehicle. The newness of the vehicle falls rapidly as compared to the debt repayment taken to purchase the car. If you have purchased your brand new car with the assistance of auto loan, GAP in conjunction with collision and comprehensive coverage is a wise decision.

For instance, if your car costing in the first year has been totalled for $20,000 and $18000 loan is pending, GAP insurance can bail you out in an event of damages to the vehicle. The collision and comprehensive coverage will offer the market value of the car, which may reduce to $16,000 after the first year because of depreciation. However, the remaining $2000 on the auto loan will be paid off by the GAP insurance.

Deciding factors for purchasing GAP insurance:

Unforeseen events can strike anywhere, anytime, and therefore adequate insurance cover is essential. In event of damaging your brand new vehicle, while you are repaying the debt, GAP insurance is your knight in the shining armour. GAP ensures that you remain covered when you have unpaid debts.

On the contrary, if you purchased your vehicle without any auto loan, i.e., in full down payment, GAP insurance is redundant. In this scenario, collision and comprehensive insurance would be sufficient.

As a thumb rule, GAP insurance is a life saver for vehicle owners who purchased their cars via auto loan and have debts to repay as divergent to the car’s market value.

Useful Information:

Often people fail to recognize the importance of GAP insurance. They believe it would be essential only when the value of their car is higher than the auto insurance policy taken. However, in the situation when the rates on auto loan are increasingly swiftly, car rates are depreciating rapidly and the down payment made was minimal, GAP insurance is a guaranteed way to cover the pending loan amount in case of your vehicle stolen or damaged.