GAP insurance is used in the event of total vehicle loss due to an auto accident. It covers the difference between the amount the insured person receives from an insurance company and the amount owed by the bank to the lienholder (bank that provided the loan) on the vehicle.
GAP insurance does not fall under the purview of the law. GAP insurance is not mandatory by law. When there is a large gap between the amount the insured person owes the bank and the amount the insurance company will pay, some lienholders would prefer that you have this type of insurance. When the insurance company pays less than what you owe, lienholders are less concerned about the possibility of their loan being paid off.
GAP Insurance Examples and Where GAP Insurance is Most Required:
Example 1. Example 1. Your auto was stolen ten months later, leaving you with a $45,620 loan. According to the auto insurance company, your car’s market value, with 42,000 miles, is just 35,600. $6,400 in this instance. If you have GAP coverage, this amount will be covered.
Example 2. Example 2. The truck was equipped with a DVD player, sound system, TVs and rims. This is not included in the truck’s commonly insurable value. The lienholder charged you an annual percentage rate of 25% for your poor credit score. The loan amount was $15,000. You paid $2,500 down. You were in an automobile accident after a year and your SUV sustained severe damage. Your insurance company determines that the truck’s value, including all non-insured items, was only 7,500. Your balance remains $12,500 after you have made payments for one year. This case, there is a $5,000 gap that will be covered by your GAP insurance if you have it.
GAP insurance is for everyone. GAP insurance is required for those who pay too much or have little or no downpayment. GAP will also be available to people who purchase high-mileage vehicles or used vehicles at a price close to the Actual Cash Valuation of the vehicle. GAP is a term used vehicles that have travelled more than average. This means that insurance companies may underpay total loss claims. If your APR is very high, chances are that you’re paying your loan off slowly while your car is depreciating. This will leave you with a GAP. The GAP is also needed by those who can’t afford it in the case of total loss.
GAP insurance may be offered by used/new car dealers. GAP insurance is optional, but it can be useful if you absolutely need it. Before you go to your dealer and get GAP insurance, you should have a general idea of whether you really need it. Get in touch with your agent to find out the current value of the vehicle. Kelly Blue Book can also be used to calculate the car’s value. Based on how much you have borrowed, you can calculate the GAP you will need.
GAP insurance costs $250-$600 over the loan’s life. GAP policies can generally be cancelled within a specified time. You may get a refund if you pay all administrative costs and commissions.
A person who buys a luxury new car without a down payment and has a potential GAP value of $12,000 may find it worthwhile to pay $600 for GAP coverage. For someone who purchases a used car for $6,000 with a potential GAP value of $1,200, it may not make sense to pay $350 for GAP insurance. Before you buy GAP insurance from a car dealer, compare prices. You will find many websites that offer GAP insurance at a reasonable price.
