In the Philippines and abroad, the purchase of a brand new car usually includes a built in comprehensive insurance coverage from a reputable insurance company. Usually however, accidents are the farthest thing from our minds when buying a new car and minimal attention is thus given to what types and schemes of insurance you actually bought along with your car. It is normally assumed that should a person get into a car accident say for instance, the week after he gets a new car, insurance covers it by paying the car company the entire amount.
The reality is that this isn’t usually the case. If you bought the car with your credit card, or with in-house financing which is not uncommon these days, chances are you have not started paying the first payment just yet, when the unfortunate accident occurs and you lose the entire
car. The car company needs you to pay the entire amount you bought it for, regardless of circumstance. The comprehensive insurance pays only for the estimated value of the car when the accident occurred. Even if the accident occurred on the way out of the car sales office, the car is considered less in value. This means that they don’t consider the car brand new. This is due to the fact that cars depreciate by thirty percent the moment you drive it out of the gate of the car sales office, and even less as time goes by.
Thus, they pay the car company their estimated value, but you yourself still owe the entire amount, which means the gap between the estimated value of your car by the insurance company, and the value you paid for it. This is why there created a need for something called ‘gap insurance’. Gap insurance covers ‘the gap’ or the difference between how much you bought the car for minus the amount estimated by the insurance company at the time of the accident. Companies offering gap insurance vary in their policies.
Some only cover the gap for certain types of accidents, and don’t cover losses due to theft. More and more car companies are offering gap insurance, and it is important to read the fine print and see exactly what is available. Times are unpredictable, and it is highly advisable nowadays to be as protected as possible, and why not, since gap insurance costs about approximately seven hundred Philippine pesos renewable every six months, or fourteen U.S. dollars. Indeed being safe has never been so affordable.