Are You Protected with Gap Insurance?
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by: tdd1984
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When you purchase a new vehicle, you may decide to add comprehension or collision coverage to your policy. This is a good decision to make if your car is still quite valuable, as it will guarantee that you are compensated for the costs of repairing your vehicle. In addition, if you had to borrow money in order to purchase the vehicle, your lending institution will require you to carry this type of coverage. What is not required, however, is gap insurance. This is because gap insurance is in place to protect you rather than the lending institution. Nonetheless, you might want to seriously consider adding this special coverage to your policy.
What is Gap Insurance?
Gap insurance is an extra form of insurance coverage that you can choose to add to your policy. Gap insurance only comes into play if your car is totaled. In order for your car to be totaled, the damages to your car have to exceed the value of the vehicle.
If the damages to a car exceed the value of the vehicle, standard collision coverage will only provide you with compensation equivalent to the value of the vehicle. Before you receive this compensation, your deductible will be removed first. If you still owe more money on your car than the car’s current value, you will still have to pay off your car loan. Therefore, if your car is less valuable than your current loan debt, you will still pay on the car even though you are no longer able to drive it.
With gap insurance, your insurance benefit will be equivalent to the amount you still owe on the car. Your deductible will still be removed first, but gap insurance can significantly reduce the amount of debt you are in after your vehicle becomes totaled.
Do I Need to Cover Gap Insurance?
Most lending institutions do not require their customers to carry gap insurance. Therefore, it is a personal decision whether or not you wish to purchase this extra coverage.
In order to determine whether or not you should purchase gap insurance, you need to consider the value of the vehicle compared to your debt. If you owe significantly more money on your vehicle than the vehicle is worth, it is probably a good idea to acquire gap insurance. Gap insurance is generally relatively inexpensive, so it is usually a worthwhile investment to purchase the coverage. If you owe less than the value of the car, however, there is no reason to carry this extra coverage.
You may choose to acquire gap insurance when you first purchase your vehicle, as you will likely owe more on the vehicle than its value at that time. As you pay down the debt, however, you may choose to later drop the coverage as the gap between what you owe and the value of the vehicle becomes smaller.
About the Author
Shannon Kietzman is a freelance writer and an authority on car insurance issues, including methods for online car insurance. She helps others learn the basics of car insurance so they can make proper and informed decisions when choosing the coverage that is right for them.
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