GAP insurance is also popularly known as loan-lease payoff coverage which can provide the much required valuable protection during the early years of the car’s life if you have opted for a loan or a lease.
If any loss occurs during the initial phase of purchasing a car, the GAP car insurance will very well pay the difference between the ACV (Actual Cash Value) of the concerned vehicle and the current outstanding balance on the loan or lease taken. A GAP insurance also sometimes pay off your regular insurance that is deductible.
If your vehicle has been totaled by a covered peril, theft, fire, accident, tornado, hurricane or vandalism, your insurance company would be in terms to pay you the actual value for your car if you have a completely comprehensive and collision insurance. This amount many a times is lesser than the actual amount which you still owe to the bank or financial institution.
When the amount of the present ACV is lesser than what you actually owe on your lease or loan, then the loss from the financial shortfall creates a “gap”. There are several first time car owners who do not have the perfect idea regarding the depreciation that takes place in a new car. Within few minutes of driving, a new cancan be worth 10% lesser than what you just paid. Car owners most of the times assume that if the car is totaled, it will be replaced at the amount they have paid or at least the amount that they owe. This is actually not the fact. This is the reason why the car companies offer a GAP insurance as an optimal insurance coverage which includes the physical damage coverage as well.
Cost of GAP insurance
If you are willing to purchase GAP insurance from a car insurance company, then the same would typically cost $20 per year as per an apex trade group called Insurance Information Institute. Most of the insurers will add the gap insurance to your comprehensive and collision coverage. Purchasing GAP warranty from dealership or lender is more expensive. The lenders typically charge between $500 and $700 which is much higher.
Is it possible to get GAP insurance without purchasing a primary insurance?
It is mandatory to purchase a primary insurance. Once you have purchased the primary insurance, only then you will be able to purchase GAP insurance. This is because the GAP insurance is not meant to catch all coverage. The full coverage of the overall liability and the physical damage coverage is also normally a requirement by your lien holder.
Can GAP insurance be purchased on a used vehicle?
Yes typically GAP insurance can be purchased even on a used vehicle. The State laws and the various insurance companies have set guidelines which vary but there are GAP policies which are available for used cars that are financed. The GAP insurance is completely beneficial when the value of a particular vehicle whether used or new depreciates while you still owe money on the lease or the loan.