WHAT IS GAP INSURANCE?
It is designed to cover the financial difference between what an individual owes a financing company and the actual cash value of their vehicle that has been totaled in an accident. This is known as Guaranteed Auto Protection (GAP) insurance. A person who obtains a vehicle through a financing company may be required to have it before taking possession of a vehicle.
Why Would You Need GAP Insurance?
This is beneficial if an individual is involved in an accident and their vehicle is determined to be a total loss. Most individuals will owe a finance company more than the value of their vehicle. A person’s insurance is not going to pay off the remaining amount of a loan. It is only going to pay the Actual Cash Value (ACV) of the vehicle and deduct depreciation. When this happens, an individual could be left owning thousands of dollars on a car loan for a car they can’t drive. When a person in such a situation has purchased GAP insurance, they’re covered.
What Type of Vehicle Loan Qualifies for GAP Insurance?
GAP insurance coverage is offered for many types of vehicle loans. Everything from high-interest rate loans, to loans with 60 months or longer on them, low down payment loans and more all qualify for GAP insurance. It is common for vehicle insurance companies to make this type of insurance available for their customers who need it. The payment for GAP insurance is usually done upfront. This means when someone purchases GAP insurance for their vehicle and then sells or refinances the insured vehicle, they may be eligible for a refund.
When is it Important to have GAP Insurance?
There are a number of situations where having GAP insurance would be very beneficial It’s important for a person to have GAP insurance when they have traded a vehicle they still owe money on for a new vehicle. They’ve combined what they owe on their old vehicle with the loan for their new vehicle. It’s also important to have GAP insurance if a person purchases a vehicle that has a reputation for losing its value quickly. This would require some research, but it would be worth it. Some people benefit from GAP insurance when they regularly drive their vehicle much more than average. Doing this will lower the value of their vehicle. Some people may have vehicle loans for 60 months or longer. This means it will take a long time for them to reach the break-even point of the loan. This is when a vehicle’s value is equal to the loan balance. People who find themselves in these situations and others will benefit from having GAP insurance.
How is GAP Insurance Purchased?
There are two common methods for obtaining GAP insurance coverage. In one case, the insurance policy is provided to the vehicle owner through an insurance agent or insurance broker. The second method involves a waiver agreement purchased by the vehicle owner from a Finance and Insurance Manager. The GAP policy sold through an insurance broker is regulated by the insurance industry. The GAP policy provided by a Finance and Insurance Manager is unregulated. GAP insurance is often purchased at a vehicle dealership. Most policies require the vehicle to be a total loss before being eligible for payment. Determining if a vehicle is a total loss will be done by an adjuster from the primary insurance company.
What Else is Important to Know about GAP Insurance?
Many people purchase GAP insurance when they first sign a contract for a vehicle. It’s also possible to purchase it after taking possession of the vehicle. Some GAP insurance providers require the insurance on a vehicle to include collision and comprehensive coverage. There may be certain requirements associated with collecting on a GAP insurance claim, and they must be followed very carefully.