Guaranteed auto protection or gap insurance is coverage for the difference between the actual loan amount and depreciated value or current worth of a vehicle which is the honored assessment by insurance companies. You will likely need this coverage in the following circumstances:
• You buy a car and your down payment was not substantial, lacking at least 20% to as much as 50%;
• Your car is financed for more than four years;
• You are leasing an auto; and
• You rolled your debt over from your last loan to your current one because this activity makes what you owe as principal even larger.
Here is a picture: you purchase or lease a car for about $25,000. After a couple of months, you get into an accident which left the vehicle irreparable. An insurer’s assessment is a vehicle’s current amount which is $20,000. Not only are you burdened to find new service, you are also answerable to finance or lease company for the $5,000 difference. In times like these, when the economy is shaky, no one would want to invest in another vehicle and risk bankruptcy. Gap insurance will make sure that you are able to pay off that $5,000 loss and you get to go on with your life.
There are two scenarios where a consumer like you need not worry about gap insurance. One is when it is already included in your lease contract. Some States, like New York, require that this coverage be included in a lease. Another is when your regular policy already covers it. This is not the norm yet some companies promise to pay off a loan without too much regard for a car’s current worth. Read and understand your policy or call your agent to be sure.
The next question would be: Where to buy gap insurance coverage? The best choice would be your current insurance provider. Some companies offer an average of $20 every six months and you have the option to drop it once gap becomes nil. Another option, which is probably the most expensive choice, is to get it from a dealership or finance company. Typically, you need to pay a one-time premium averaging $400 plus interests if it is added to your loan or lease. Here, you cannot opt-out. You continue to pay that interest for as long as you are paying for the vehicle. Lastly, purchase from another insurer if your current one does not offer this coverage. You just have to make sure that the ratings for the services of this new company are excellent.
