What is GAP Car Insurance and Do I Need It?
Answers to Determine Whether This Form of Insurance is Right for You
GAP is an acronym for Guaranteed Auto Protection. For instance, if you buy an automobile and pay $20,000, you find that when that automobile hits the road the value depreciates. On average the depreciation of the automobile is about 20%. So if a tornado hits your area and a tree falls onto your automobile a month into the auto loan, you will still owe just a few hundred dollars less than what was financed. Or at least you think so. However, the automobile which was purchased for $20,000 is now only valued at $16,000. The catch is that you now have a difference of around $4,000 that is not covered.
This is where GAP insurance comes in. GAP insurance will allow the automobile to be "totaled out" and the owner of the car can walk away without having to pay anyone anything other than premiums. Most people don't know that some GAP insurance will cover the deductible that is due to the company that holds your liability / collision/ comprehensive insurance policy.
What happens without GAP insurance? In the case that the automobile is determined to be "totaled" the difference in the retail value of the car and the amount financed is still due to the finance company. The insurance company will pay the retail value of the automobile to the finance company, and the difference is owed by the owner of the car. If this amount is not paid, it can affect your credit, as the finance company is still legitimately owed the difference.
Is GAP insurance a good idea? Indeed it is. In most cases it can be purchased through the dealer or other sources for only a few dollars per billing period, and is well worth the investment. One must keep in mind that it's not always your fault that an automobile becomes totaled.
Source:
Tim Ryles, Ph.D., "Probing the Gaps in GAP Insurance", IRMI.com
Published by Yona Gold
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1 Comments
Post a CommentGreat information on GAP insurance!