Bought a Brand-New Car? Get a GAP Insurance Now- We'll Tell You Why

As the proud owner of a new car, it is mandatory by law to purchase some or the other form of car insurance. GAP insurance is one of the types of motor vehicle insurance plans that one can take up

However, most people do not know what GAP insurance is, coverage offered and the benefits extended to policyholders. Here’s a closer look at what GAP insurance is all about.

What is GAP Insurance?

GAP is the abbreviation for Guaranteed Auto Protection, also referred to as GAPS, which is a form of insurance that protects policyholders from depreciation cost of vehicles against the amount owed. This type of insurance is purchased by the policyholder when the car is bought.

Do You Need GAP Insurance?

The best part about this type of insurance is that it covers all bases in case you made a bad purchase or deal. For instance, if you have to write off your car then this insurance kicks in and pays the difference owed without causing a bigger financial liability in the form of mounting debts.

Therefore, this insurance helps protect vehicle owners from worse case scenarios and shields them bearing heavy losses.

How Does GAP Insurance Work?

If a loan is taken by the car owners at the time of purchase, then they will be unable to purchase a standard car insurance plan at that time. This is because car insurance is paid for the actual cash value of the car and since it is not applicable when a loan is taken to procure the car GAP insurance acts as a buffer ensuring that the value of the car and the amount owed are balanced out and paid.

For this reason, gap insurance is helpful to ensure financial stability and this way lenders will not reject a loan application on the based on bad credit history. However, there are situations where the loan terms are not very favorable, and GAP insurance can help ease the financial burden in a situation like this.

When is GAP Insurance the Best Solution?

Gap insurance is the best solution to opt for in the following scenarios:

• When the car is leased
• When therate of interest is high
• When car loans are extended for 5 years or more
• When a new vehicle is purchased using low down payment

This type of insurance is useful especially if a contract-deal on a long-term basis has been signed and the car gets stolen, for instance, then the entire amount is owed to the company. In such situations, GAP insurance creates a buffer and helps policyholders pay off the difference.

Another scenario where GAP insurance is useful is when one can’t afford to replace the car. Since the value of a new car depreciates rapidly, it is difficult to afford a new replacement without getting the remaining amount of money.

When is GAP Insurance Not the Best Solution?

Gap insurance is not the best solution to opt for in the following scenarios:

• When all payments for car purchase have been made
• When a short-term loan has been taken (less than 3 years)
• When a good deal or discount is given for the car
• When a sizable down payment has been made on the car

The thumb rule when it comes to any loan is that the less one owes,the better. Therefore, if there is no outstanding car loan, then it is not necessary to invest in GAP insurance.

What are the Different Types of GAP Insurance Covers?

Some of the common types of GAP insurance covers include:

• Agreed value
• Vehicle replacement
• Return to invoice
• Contract hire and finance

The agreed value type of insurance covers the difference between the purchase value and the current value of the car, which is also referred to as shortfall gap. Vehicle replacement covers the difference in vehicle value amount and the cost of replacement.

Return to invoice cover helps fill the value of the vehicle and the price paid originally for the vehicle. Contract hire and finance pays the difference between pending amount and the real value of the vehicle.

It is important that the right insurance type is selected to receive maximum coverage and avoid liability and burn a hole in one’s pocket.

How to Find the Best GAP Insurance Deal?

While shopping for GAP insurance deals, it is essential to note that not all insurance covers have this policy and it is best to select one with this option. Otherwise, a rider can be added to a general car insurance policy that would act as gap insurance.

Also, keep in mind the pointers discussed in this post before selecting a policy so that the policyholder is protected from unnecessary and avoidable losses. Additionally, read the terms and conditions before entering into a deal so that you have all the bases covered and have nothing to worry about even when the car value depreciates or gets stolen.