Although car dealers offer gap insurance, many car owners are quite unfamiliar with this type of coverage. More often than not, car owners ignore this type of insurance coverage simply because they do not understand how this type of coverage works. Although most car owners can safely ignore this type of insurance without suffering from severe consequences, some drivers simply cannot do without this type of protection.
Who should get gap insurance coverage? Owners of brand new cars need to get gap insurance to stay protected. This type of coverage covers the gap between actual and estimated cost of a vehicle. Note that the moment a buyer takes out a car from a dealer’s garage, the car’s value automatically decreases. Why? A car can only be considered as brand new if it is still on the display window of a dealer. Once a buyer takes a car out from the dealer’s place, the vehicle’s automatically become a slightly used car. Yes, even if a vehicle is barely out of the dealer’s place and into the street, it is already considered as a slightly used car so its value depreciates.
Now, as a general rule, slightly used cars fetch in lower prices compared to brand new cars so there is now a slight different between contract price and estimated value of the car. This slight difference between a vehicle’s contract price and its estimated value is not covered by regular car insurance coverage. In case something happens to a vehicle a few days after a new owner takes it out from the dealer’s place, car owners will now be liable for the difference between the contract price and estimated price. For instance, if a contract price of a car is $25,000.00 and estimated cost of the car is only $22,500.00 after a buyer takes the car out of the dealer’s place, the difference of $2,500.00 is no longer covered by regular car insurance. In case a vehicle gets totaled on the road a few days after a buyer takes it out from the dealer’s place, a regular insurance policy will only cover up to $22,500.00.
Since an insurer only covers the estimated price of a vehicle, who will pay for a difference in price in case a car gets totaled on the road? If an owner did not get gap insurance on his vehicle, he or she will need to pay for a difference in price from his or her own pocket. In other words, a car owner will now have to pay for a fraction of the value of a non-existent car.