What Is Gap Insurance And Who Needs It?
Posted on: 14 February 2020
If your car is involved in an auto accident, you might find yourself in a situation where the value of the car is less than what you owe on it. In such a case, you might be forced to use your personal assets to bridge the gap (after the insurance compensates you up to your coverage limit).
However, your auto insurance coverage can compensate you up to the value of the car if you have gap insurance coverage. Anyone can benefit from gap insurance, but you definitely need it if the following circumstances apply to you.
Small or No Down Payment
Some dealers allow you to buy a car with no down payment or a very low down payment. That means the financier more or less owns the car, and they stand to lose a lot of money if the car is damaged in an accident after it has significantly depreciated. In such a case, you need gap insurance to protect the financier's interests. In fact, most financiers make gap insurance a requirement for those looking for car loans.
Leased Car
Leasing a car places you in the same situation as buying a car without a down payment in that you don't own the car outright. The leasing company is in a similar situation as the car financier since the leasing company stands to lose money if the car is totaled after it has depreciated. Thus, many leasing companies also require gap insurance from their clients.
Accelerated Depreciation
Accelerated depreciation of a car puts you in a precarious situation in the case of an accident even if you own the car fully. Your car can experience accelerated deprecation if you use it hard or drive a lot. Some car makes and models also depreciate faster than others. Having gap insurance will help you get a replacement car in case yours is totaled or stolen.
Lengthy Loan Term
A lengthy car loan, such as one stretching to five or more years, also requires gap insurance. After four years or so, you will still be paying your car loan but your car shall have experienced serious depreciation. Again, that means that losing or totaling the car exposes you to financial risk if you don't have gap insurance.
As you can see, gap insurance can help in a variety of situations; the list above is not even exhaustive. If you are not sure of your need for gap insurance, consult your auto insurance agent for help.
To learn more, contact a car insurance agency.
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