Introduction
Among the main reasons for car damages and losses are accidents and thefts. Essentially, since your insurance firm will be meeting the costs of repairs or replacement, you can be almost assured that you will have to pay a great deal out of your pocket. This is where Gap insurance becomes handy.
It is an important coverage that ‘fills the gap’ between the amount of your car insurance settlement and the real market cost of your car. So, in this article, I’ll explain what Gap insurance is in detail and why this insurance is needed for your car.
What is Gap Insurance?
Gap insurance, also known as Guaranteed Asset Protection is an additional auto insurance cover that protects an owner in instances where the car is deemed a total loss or is stolen. Many car insurance policies pay the owners a percentage of the car’s value and often this only equals the actual value of the car at the time it was damaged and not its retail value. Gap insurance guarantees that the insured is not left with the purchase of any shortfall.
Why Should People Care for Gap Insurance?
Gap insurance is crucial for several reasons:
- Depreciation: Car depreciation starts as soon as you drive the car from the lot of the car dealership. New cars have been known to devalue at very high rates of about 20% per year for the first 3 years. Such a car will depreciate from the initial value of $30,000 to $24,000 in a year, and further to $18,000 in the second year of ownership. If you lose your car either by theft or in an accident and during this period, then your car insurance company will only take a pre-loss value of the car, and you will be expected to foot the remaining balance.
- Loan Amount: If your car has been paid off through an automotive financing or lease agreement, the remaining balance is far higher than that of a cash value from an insurance settlement. It means that the full comprehensive cover will help you avoid being left behind to pay the difference when you truly cannot afford it.
- Comprehensive and Collision Coverage: Gap insurance kicks in when your vehicle is a total loss because of an accident, theft, or natural disasters among others. While the comprehensive and collision coverage will pay for the damages, the depreciation matter is still there; that makes Gap insurance very vital when it comes to this.
- Warranty Repairs: In Netherlands, if your car develops some mechanical problem that requires warranty repairs, if the car is totally written off, then, the warranty company will only consider paying for the depreciated value. That means if you have an accident which totals your car, then the insurance company takes care of the balance, as long as you have Gap insurance.
Types of Gap Insurance
- Standard Gap Insurance: This option refers to the gap between the amount that is given by your insurance company and the money value of the car. It is normally provided by your car insurance company.
- Non-Owners Gap Insurance: This type of coverage is recommended for persons who use a car occasionally for personal purposes, and they do not own a car. If the policyholder has an accident, the Gap insurance will be useful since it covers whatever is not paid by the actual insurance.
- New Car Replacement: This coverage option reimburses up to a certain limit to purchase a new car which is of the same model as the totaled or stolen one. This coverage will cost relatively higher than the previous one, though is very helpful at this stage.
- Shortfall Gap Insurance: This coverage compensates you for the amount that your car is short of the finance after receiving your insurer’s payout but to the sum assured only.
Conclusion
Bodily injury liability, on the other hand, is another additional feature of an auto insurance policy because it insulates policyholders from major losses that may arise from the damage or theft of automobiles. The coverage means you are not left to pay for the loss that your car insurance compensation lacks to cover.
Nonetheless, enticingly accessible, Gap insurance is commonly ignored until unfortunate circumstances where it is a real financial relief and stress-saver.
Therefore, incorporating Gap insurance into your car insurance policy might help to increase your coverage greatly. It probably helps to prevent some of the unexpected costs that would otherwise be thrown at you in the future.