Should I Get Car Gap Insurance?
Driving a car on the road without insurance is a crime in every part of the world; everyone deserves compensation when involved in a road accident no matter how minor it may be. Insurance compensates both physical car damage and bodily injury which results from traffic collisions. However, gap insurance is a the of insurance not well known by many drivers. Gap insurance is also known as guaranteed auto protection and is needed for a short Why should I. get gap insurance for your car? Is it important? Why do you need gap insurance? Keep reading to get the answers to your questions.
What is Gap insurance?
Gap insurance is a type of insurance that covers the difference between the current value of a car and the value at the time it is involved in an accident to the point of being written off. Gap insurance is important since immediately after a car leaves the showroom its values go down by 20% within. In case of an accident, your insurance cover cannot cater to the original value of the car. It cushions the owner of the car such that they will not experience the financial implications of the incident.
Gap insurance also comes in to pay for the top-up balance needed by a bank if the purchased vehicle had been financed by them in cases where the car is written off. Gap insurance is applied for if the loan used to buy the car is higher than the market price of the car. It covers the car when the owner is repaying the loan so that the insurer will pay the remaining amount to the creditor in case the car is totaled in an accident. Gap insurance comes in to close the gap between the depreciated value and what is owed on the loan.
When do I need a gap insurance policy?
A gap insurance policy is a great idea for your newly purchased car if it was purchased under the following circumstance:
- The vehicle has been financed for over 60 months
- The purchased car model is known to depreciate faster than the average rate of other vehicles in the market
- The down payment made is less than 20% of the total value of the car
- The vehicle is leased
- The car has been rolled over negative equity from an older car loan to a new car loan.
External factors may compel the car owner to acquire a gap insurance policy so that the lender may be secure when lending the money. This assures the lender that all the money will be paid even if the car is totaled in an accident. Gap insurance is emphasized if the institution financing the car has received a down payment that is less than 20%.
How to acquire gap insurance
Acquiring a gap insurance policy is a great decision for any person purchasing a new car. Some car dealers offer to sell this policy to you on your car purchase which buyers gladly do. In addition, you may approach your car insurance provider to sell you the policy. Buying the policy from the insurer is cheaper than buying from the car dealer hence the best option to go for.
The amount the car owner pays to the insurer depends on the type of car since valuation has to be done before an installment is agreed on.
Comprehensive insurance versus gap insurance
Comprehensive insurance covers your car fully in case the car is totaled in an accident and any other natural calamity like floods and fire outbreaks. However, comprehensive insurance will only settle the full price of the car as insured but will not settle the bank loan balance owed to the car. On the other hand, gap insurance compensates the owner of the car and also pays up the loan balance from the car financier. Gap insurance will close the gap reducing financial pressure on the client from the bank.
In addition, comprehensive insurance applies to the car all the days it’s operating on the road but gap insurance is only acquired in the early years when the car is in use until when the loan is paid in full. Afterward, the owner of the car will not be required to pay a gap insurance policy. Gap insurance is considered supplemental insurance to cushion the car’s owner from the cruel effects of default from the lender.
How gap insurance works
Gap insurance works best when the amount financing the car is greater than its market value in the early years of its use. If the down payment is small, the installment should be large enough to fill in the gap for sufficient equity in the vehicle. Gap insurance is necessary given that cars depreciate within a short time after purchase.
Gap insurance is an antinode when an accident occurs and the car is written off because the owner is assured of complete compensation. They are also assured of complete settling of the car loan which brings the heart to rest when working on paying the loan.
Gap insurance is not a policy one must acquire unless required by the car dealer especially if the down payment is less than 20% of the total price of the car. Nevertheless, acquiring this insurance type gives you peace while settling the car loan bearing in mind that anything could happen to the car. It is advisable not to pay gap insurance when not required to. This saves the money but only pray that the car will be safe until all the loan balance is settled.
So do you require a gap insurance policy? This depends on the terms of the purchase of the car and the security you would wish your car to have as you pay the car loan. It is however highly recommended you acquire one if you have a car loan.
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