Understanding GAP Insurance
Cars decrease in value immediately after they are bought. A car that has been used a number of times is worth significantly less than its original retail value. The money that an insurance company pays out when a car is stolen, damaged, or destroyed is based on its estimate of the car’s actual value. If you are paying for a car in installments and have only paid a small fraction of the cost at the time your car is destroyed or stolen, the insurance company payout may be considerably less than your remaining balance. So, you end up without a car and with a remaining balance to pay.
Gap insurance offers a solution to this problem. The GAP in Gap Insurance means Guaranteed Auto Protection. Basically, it covers the “gap” between the amount the insurance company will give you for the loss or destruction of the car and the amount of money you still owe.
Gap insurance is a must for people who are paying for a car in small increments. They are the ones who are most likely to owe more than their car’s estimated value. It is also necessary for those who are leasing a car. In most instances, companies require a person to have Gap Insurance before they lease out a car to him or her. This is because the money that person is likely to have spent in paying for the car lease is very small compared to the car’s retail value. In the event of an accident, when the lessor will have to buy the car from the company, he will have to pay a large remaining balance.
There are companies that offer other options for Gap Insurance, depending on the policy that the customer wishes to avail of. There are policies that give the customer enough money to buy a replacement vehicle (minus the estimated market value, which will be paid by the primary insurance company).
It is important to note that Gap Insurance does not automatically come with your regular policy. They may offer it as an optional addition, but this is not always so. Not all automobile insurance companies offer Gap Insurance. If your company does not provide it, you should try checking with the company or dealership where your car was purchased from. You can have the coverage of your existing policy updated or extended, or you can purchase a separate policy.
Author: PDelmendo
Tags: auto protection, automobile insurance, estimated market, gap insurance, insurance companies, primary insurance
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