When it comes to purchasing a vehicle, there are so many options that make it difficult for you to decide. However, nowadays, you’ll find reviews and other vital information that can give you an idea of what the vehicle has to offer. Hence, the hassle of purchasing a brand new vehicle has drastically decreased.
Once you purchase a vehicle, the next step is to find the right insurance. As we know, people buy insurance for the security of their assets. However, since there are multiple insurance companies and policies, this too can be quite tricky to decide which one would be best.
Today, we are focusing on gap coverage. Continue reading on as we’ll explain what is gap insurance and what does it cover? We’ll also determine whether buying it is worth it or not.
What is Gap Insurance?
You might have come across the term gap insurance before as well. It is formally known as “guaranteed asset protection.” It is an auto insurance or extra cover that protects car owners against losses such as car accidents.
Your insurer will only pay for your vehicle’s fair market value, and if it’s less than what you owe on the car loan, gap coverage comes into play. Gap insurance is vehicle replacement insurance for vehicles. It fills the gap between what you owe on the car and its fair market value in case the car gets stolen, destroyed, or totaled.
How Does Gap Insurance Work?
Well, whenever you purchase a vehicle or lease it, you must know that the vehicle’s value will begin to depreciate once it leaves the car lot. According to studies, most cars begin to lose value in the very first year of purchasing it, and the value may fall down by 20 percent.
This is where standard auto insurance policies come into play as they cover the depreciated value of the vehicle. It pays the current market value of the car at the time the car owner makes a claim.
Gap insurance is the add-on cover that you can buy to cover the gap between your car’s actual cash value (ACV) and the amount owed on it. There are several types of gap insurance; however, they all work as coverage for the gap between the insurance payout and the current market value of your car.
Example of Gap Insurance
When it comes to complex topics that include information on certain policies and how they work, an example can create a better understanding to grip the information provided. We have a perfect example of how gap insurance really works.
For instance, let’s say that you go ahead and purchase a vehicle from a dealer for $10,000. As time passes, and your car’s value depreciates, you face a bigger problem, such as a major accident or car stolen. Your insurer pays you $6,000, your car’s value at the time of your claim.
But if you buy the add-on cover, i.e., gap insurance, you will receive the difference between what the insurer pays you and the current value of your car. Of course, this would also depend on the type of gap insurance you opt for.
What Does It Provide?
You may wonder what does Gap insurance cover. Gap insurance is quite useful as it can provide an additional cover while buying a new vehicle or even when it comes to the protection of your current car’s value. Do you know that this coverage is not a substitute for the standard car insurance policies?
Standard insurance policies allow you to make a claim when you get into an accident that totals your car. However, these policies only cover the value your car has at the time of the claim. This means, over the years, as your car’s value depreciates, your claim will not be of much value when needed.
Therefore, if you’re looking for a more secure backup plan that can cover much more than standard insurance policies, gap insurance would be the best idea.
Is Gap Insurance Limited to Brand New Cars?
Many people have this misconception that gap insurance is only for brand new cars. However, as we mentioned earlier, there are several types of gap insurance. Some of them cover used cars too. It doesn’t matter if you purchase a new vehicle or an old one, you can still buy this coverage to secure your car’s value.
Types of Gap Insurance
Now you must be wondering what types of gap insurance are available. We have explained each type of insurance below so that you can learn about them and determine which one would be suitable for you and your vehicle.
Return to Value Insurance
This policy basically covers the difference or the gap between the value of your car upon taking out the gap insurance and what the insurer pays. In this policy, the insurer will value your vehicle, which will help decide the payout during the calculation.
Return to Invoice Insurance
This policy will help pay the difference or gap between the insurance payout and the price you paid for the car. This policy focuses on the invoice price of the car bought in the last three months, and it doesn’t matter whether you buy a new or used car.
Vehicle Replacement Insurance
You might have an idea of what this is by the given name. This policy basically gives you a payout for replacing your current vehicle with a brand new one, which would entirely be the same make. This means the same model and specifications. Even if the price of the new vehicle increases, it’s something you don’t have to worry about as the insurer will have to pay for it.
Is Gap Insurance Worth It?
Well, if you’re worried about not getting the original price of your vehicle back when you make a claim, gap insurance can help you out. As mentioned, gap insurance could pay the difference between what the standard insurer pays and the car’s original worth; this makes gap insurance quite useful. However, the question of whether it is worth it or not depends on how much it costs.
Other than this, as your car depreciates over the years, gap insurance can give you a sign of hope if things go wrong with your vehicle. You’ll receive the full amount of what you invested at the time of purchasing the vehicle.
Where to Buy Gap Insurance?
There are mainly two places from where you can purchase gap insurance, the dealership or bank (auto insurance provider). The cost of each varies, depending on what they have set for you to pay yearly.
But who exactly can you contact in order to purchase gap insurance? You can get gap coverage through the following sources.
- The auto insurance provider
- Car Dealership
- Gap insurance companies
Why Is Gap Insurance Recommended?
Gap insurance is a good option for new vehicles for a number of reasons. The following are the times you should consider getting gap insurance.
- When a car loan has a duration of five years or longer
- When the loan consists of a high-interest rate.
- When you have initially paid a low down payment
These are the reasons for when you should consider buying gap insurance as it can help you in these situations and save you money.
Everyone is familiar with what insurances are and why they are important. They are a way of protecting the assets you own. Nowadays, no matter what you purchase, you have insurance providers who can secure your investment, providing coverage against losses. You’ll find many auto insurance providers that offer security options for vehicles, including gap coverage.
Therefore, if you’re looking to protect your car’s value and the initial investment you made when purchasing the vehicle, gap insurance can provide great coverage. Visit BudgetMotorsReno.com and Blog.BudgetMotorsReno.com