Did you know that Gap Insurance on Car can help protect you from paying out of pocket if your car is in an accident? That’s right, It can help cover the difference between the amount your car is worth and the amount you still owe on it. In PowerPAC plus, here’s what you need to know about this insurance and how it can benefit you.
What is it?
Insurers assess the market value of your car to determine how much to pay out on a “total loss” claim, which means the vehicle must be completely replaced. Even if you paid £30,000 only a few years ago, you may only receive a £15,000 reimbursement to replace it. GAP insurance is intended to cover the “gap” between the market value of your car at the time it is stolen or written off and the amount you paid for it when you purchased it.
- Return to invoice cover
The difference between your auto insurer’s “total loss” reimbursement and the precise price you purchased for the car is covered by return to invoice coverage.
- Return to value cover
Return to value coverage pays the difference between your insurer’s maximum payment and the car’s original value. It’s designed for those who buy used cars.
- Vehicle replacement cover
The difference between the insurer’s total loss payment and the cost of replacing it with a new car of the same make, model, and specifications is covered by vehicle replacement coverage. It is intended for drivers who want to know whether they will be able to purchase a new version of the same car, even if the price has increased.
- Finance cover
This sort of insurance is designed to pay off any outstanding debts you may have if you purchased your car with a loan or if you signed a lease agreement that leaves you with financial obligations.
- Lease cover
Also known as contract hire cover, this type of cover will meet any remaining pre-determined repayments linked to your leasing agreement. In some instances, it can also protect the deposit you pay at the start of the contract.
Why do you need to have GAP insurance?
Many lenders need collision and comprehensive coverage on your vehicle insurance policy until your automobile is paid off if you’re leasing or financing a new car.
Gap insurance on car is intended to be used in conjunction with those insurances. Your coverage coverage would help pay for your totaled or stolen vehicle up to its depreciated worth if you have a covered claim. When you drive a brand-new vehicle off the lot, its value drops immediately, according to the Insurance Information Institute (III). In addition, the value of most automobiles depreciates by roughly 20% in the first year of ownership.
But what if your loan or lease balance is still higher than the vehicle’s depreciated value? This is where gap insurance can come in handy.
How much does it cost?
Gap insurance can be expensive, but it is usually not. If you buy gap insurance from the dealership, it can cost hundreds of dollars a year. When you add gap coverage to a car insurance policy that already includes collision and comprehensive coverage, your annual premium will normally rise by $40 to $60.
- How is gap insurance calculated?
Lenders and dealers figure out how much gap insurance would cost you depending on your loan and the estimated depreciation of your vehicle. For larger debts, gap insurance can be more expensive. Car insurance providers figure out how much gap insurance will cost you depending on your vehicle and driving history.
- Does gap insurance always pay out?
Only if your complete loss claim is approved and the settlement you obtain for your vehicle does not meet your outstanding loan amount will gap insurance kick in. Gap insurance can also pay the difference between their insurance company’s settlement offer and the outstanding debt if another driver was at fault. Some gap insurance policies have a cap on how much you can get in total. For example, Progressive’s gap insurance policy covers up to 25% of the vehicle’s ACV. If your car has depreciated significantly, this gap payment may not be enough to cover the entire loan.
When should you buy GAP insurance?
If you’re buying a new car or truck, it’s a smart idea to think about gap insurance.
- Made a down payment of less than 20%
- Financed for at least 60 months
- I rented the car (carrying gap insurance is generally required for a lease)
- Have you bought a car that depreciates faster than the average?
- Negative equity from an existing car loan was transferred to the new loan.
Gap insurance coverage may apply if you’re underwater on your auto loan (meaning, you owe more than the car is worth) when your vehicle is stolen or totaled. “Totaled” means that repair costs exceed the value of the vehicle. Whether a vehicle is declared totaled depends on state laws and your insurer’s discretion.
What are the benefits of GAP insurance?
Gap insurance can be an important tool for adult drivers. This type of coverage can help protect you from financial hardship in the event that your car is totaled or stolen. Here’s a look at some of the key benefits of gap insurance.
- Never have to pay off tens of thousands of dollars in debt on a car you no longer own.
- The GAP coverage is in place for the duration of the loan.
- Customers are protected from depreciation on newer autos.
- In states where a deductible is required, GAP insurance will cover the insurance deductible as well as any outstanding financial debt.
How does GAP insurance on car work?
When your automobile is totaled and you owe more than the car is worth, gap insurance pays the remaining sum on your loan or lease. To be eligible for gap insurance, your automobile insurance policy must include collision and comprehensive coverage. A typical gap insurance claim goes like this:
- You’ll file a claim on either the collision or comprehensive insurance section of your policy if your automobile is stolen or totaled in an accident covered by your car insurance policy.
- Your car insurance company will reimburse you for the ACV of your vehicle, less your deductible. Your insurance payment will be $16,500 if your automobile is worth $17,000 and you have a $500 deductible.
- Your gap insurance will cover the difference if you owe more on your loan or lease than the insurance payout for the worth of your car. If you owe $20,000 and the ACV is $17,000, your gap insurance will pay $3,000 to cover the difference.
Some gap insurance laws may cover the whole loan balance, including any negative equity rolled into your new car loan. It is incorporated into your new loan if you trade in an automobile for which you owe more than it’s worth. However, not all gap insurance policies cover negative equity, so if you rolled it into your new auto loan, make sure you choose a policy that does.
Gap insurance can be a valuable addition to your auto insurance policy, but it’s important to understand how it works before you decide if it’s the right coverage for you. In this article, we explain what gap insurance is, who needs it, and how it can help protect you in case of an accident. So, let’s get started! What is gap insurance and why do you need it? Gap insurance covers the “gap” between the amount your car is worth and the amount you still owe on your loan or lease. If your car is totaled in an accident or stolen, gap insurance will pay out the difference between those two amounts.