A month ago, you leased your dream car i.e. a brand new Mercedes Benz after years of hard work. As you are driving to work, your car gets wrecked by a drunk driver. Your brand new Mercedes Benz is totaled but you’re not worried as you have insurance and are confident that it would cover the damage. However, the standard insurance only pays $28000 instead of what you owe (current outstanding balance on loan) i.e. $34000. Now you have to pay $6000 extra even when you don’t have the car. How are you going to cover the difference? This is where GAP insurance becomes important, but you still have to see what the best stand-alone gap insurance is?
What is GAP insurance?
GAP insurance is also known as Guaranteed Asset Protection coverage is an additional car insurance coverage for financed/leased vehicles that covers the difference between what you owe to the car dealership as a loan and what the car is worth. It is an insurance that protects you in case your car gets stolen or damaged and the actual cash value is much less than what you have to pay as a lease/loan. When you lease or finance a new car, you have to pay a fixed amount in a long interval and that amount is determined by the car’s actual cash value at the time of the deal. As the car comes on the road, its value depreciates drastically i.e. 20 to 25% in just the first year, so a gap is created between the actual cash value and the amount you owe as lease/loan. Your standard insurance covers the damage in case of any mishap but you’d be surprised to know that it pays only what your car is worth at the time of the incident and does not care what you owe.
Is GAP insurance for me?
If your car was stolen or wrecked right now, would your car’s market value be less than what you owe to the dealership? If yes, then you are having negative equity also known as being upside down on your loan/lease so it is probably that you need the best stand-alone best GAP insurance. This type of insurance is only for someone who financed or leased their vehicles. The specific situations when it’s best to have such insurance could be when you financed your vehicle with very little down payment, you’ve bought a car that’s value depreciates very quickly, the car loan is long term, etc. All these situations lead to a significant difference between the money you owe and the money the car is worth. You should keep the insurance until the car’s actual value equals what you have to pay, after which it is of no use. Is it worth it? If you have any of the above situations then it is probably best to get GAP insurance as it does not cost much and could end up saving much money. If you can spend so much on standard insurance, why not pay a bit more and be free from financial risk. A small tip would be to avoid car dealerships for such kind of insurance as they are typically more expensive as compared to insurance companies. What is covered in my GAP insurance? GAP insurance protects you only when your car is totaled or stolen. That does not mean that the insurance will cover you if it’s in repairable condition. Best GAP insurance covers damages just like your standard insurance which include theft, accidents, fire, natural disaster, etc. This insurance is strictly associated with your car and it does not pay for any injuries or any other property damage.
What Does Gap Auto Insurance Cover?
Getting a new car is great and making sure you have the insurance coverage you need as it is one of the most important things you can do to protect your new vehicle. Of course, you don’t want to have a gap in insurance, which is why you need to have gap auto insurance. Yes, you know that the insurance coverage between the spreads is important, but it is just as important to know what these covers mean.
Understanding your GAP auto insurance coverage is simple and can save you a lot of money and time down the road.
There are two important things to know about your gap insurance coverage: what is covered and what is excluded (or not covered). First, take a look at common auto insurance coverage:
Most gap auto insurance policies will also cover your insurance deductible.
Gap auto insurance covers most of the total losses, but what does that exclude?
So, now that you know your GAP auto insurance will cover just about any total loss that your home insurance company didn’t cover, what won’t GAP insurance cover?
6 Gap common auto insurance exclusions:
- Cars that are not covered by comprehensive and collision insurance
- Any equipment on the car that was not factory installed.
- Money that was rolled into the car loan such as a commercial or leased vehicle
- Costs for other products added to the loan or lease, such as extended warranties
- Unpaid or past due payment or loan payments
- Financial penalties or security deposits on rented vehicles
Remember, these are just examples of common coverage and exclusions, and it’s important to check your policy to see what the limitations and exclusions are in your auto insurance.
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