Most car owners are unaware that their car’s value depreciates rapidly the moment it leaves the auto company. If a new car gets totaled or stolen, its owner still needs to pay a large portion of his loan, even though he has a comprehensive insurance. The owner will continuously pay out for the auto loan even if he can no longer use the car because of an accident or theft. Because of this, an owner will face a big financial problem that he should deal with personally. Before getting anxious about this fact, there is already an available solution – GAP insurance.
Before anything else it would be beneficial to define the term. GAP stands for “guaranteed asset protection” insurance whose purpose is to insure the difference between how much you owe your car and its fair market value or what the company says it is worth. It protects owners from financial risks in case their new vehicles get stolen or destroyed due to an accident. Instead of you shouldering all expenses for your remaining auto loan, GAP will provide financial assistance by addressing your vehicle’s negative equity. There is negative equity when value of a property costs less than value of any existing finance on the said property.
In other words, GAP insurance is only applicable if your car is just a few months old. After a few years, marketing price of your vehicle and your remaining loan will be approximately equal, so applying for GAP will not be that beneficial. When is the perfect time to get it? The answer is as soon as you purchase your car. Do not worry because it is an inexpensive insurance, but it can save you thousands of dollars in the future.
However, one problem is that most insurance companies and auto dealers do not offer this coverage; or if they did, most will not tell you unless you ask. Some dealers may also claim that you can only apply for GAP insurance at the time of purchase, but actually you can avail it within the first twelve months of your new car. Evidently, the longer time you waste before you enroll, the fewer your reasons will be for getting it. Many car owners fail to apply for it, and face risks of bankruptcy because of their ignorance.
Now you know what GAP insurance is and what it can do to you financially, the next step is to spread the word. Understand your rights and privileges as consumers and know what steps to take for better living.