As soon as you thought you knew every little thing about car insurance – along comes GAP insurance. Even though it may sound pointless, it is coverage essential for renting. In case you made a small down payment when purchasing a car, a GAP policy can be a lifesaver too. However, let’s explain why it exists. As the title suggests, the plan covers what typical automobile insurance isn’t going to. In other words, it closes the GAP between what your insurance company will pay in case your vehicle is thieved or destroyed and anything you owe the finance provider.
How does GAP insurance work?
Let’s take a test case. Say you purchased your car 2 months ago for $25,000. You start making payments at around $500 per month according to a six percent interest rate. Next, catastrophe strikes: a tree drops on your car and flattens it.
You call the insurance provider, and he checks the account and determines that at the time of the vehicle accident, your car wasn’t worth more than $ 20,000. The automobile may well only be a few months old, but it has lost twenty percent of its value by now.
Goodness! You will find there’s a GAP of $7,000 amongst the $20,000 that the insurance carrier is willing to pay you and the $27,000 the finance provider is requiring. Most people will be eating Spam meals for the next couple of years, but you can safely buy steak if you have GAP insurance, which explains why its coverage is essential for numerous drivers. Believe it or not, it is usually mandated by lease contracts or included within them.
If a GAP policy is needed but not included in your agreement, you must shop around for this insurance plan (insurance providers offer it).
If GAP coverage is presented in the rent, just how much is provided and invest in it.
Occasionally, hire contracts may incorporate what is known as a GAP waiver, which covers you from GAP charges if perhaps the rented automobile is announced a complete loss – eradicating the need for GAP coverage.
Is the GAP insurance plan essential for those who finance their vehicles?
Well, it totally depends on your coverage plan. In case your regular insurance coverage is written to repay an entirely funded amount of money, you definitely do not need GAP coverage.
Some things to be aware of when purchasing GAP insurance coverage:
- While most people invest in it whenever a lease is started, some insurance carriers will offer you a GAP policy anytime throughout the lease term.
- You must agree with all terms of the lease.
- Your coverage will not be respected without having comprehensive and collision insurance coverage.
The additional lease contracts typically require that you carry comprehensive and collision all the time.
In case your vehicle is smashed up, or stolen, very carefully stick to all conditions made by your insurance provider.
For illustration, numerous providers expect you to proceed to make loan payments on your destroyed vehicle up until the cash from the GAP car insurance coverage is paid out.
So whenever initiating an auto loan or lease, never forget to check with your insurance broker or loan officer regarding the GAP insurance plan.