Gap insurance is termed as one kind of optional coverage for brand new cars that can be added to the accident insurance policy. You can call it as a difference between the original cash value of the vehicle and the balance owed on the car loan or lease. In general, the GAP coverage is used for new small and heavy vehicles such as cars, trucks, etc.
How Does Gap Insurance Work with Car Loan
Want to know how much your GAP coverage pays for your car?
If your car’s policy covers the total loss up to the extreme limit of the car insurance and the present date’s actual cash value of the car, the collision car insurance policy (GAP) will help you pay for the replacement of your car. You can calculate your actual car value (ACV) by subtracting the actual cost value of the car when it was brand new minus its depreciation value. After a year of your purchase, the car value gets depreciated and it can leave you having an expensive lease balance of the vehicle.
The GAP insurance either may cover some of the value or the total value as well. However, you should know that the GAP coverage is not applicable to all states and it is applicable for a few selected states only. One more thing, you have to know that GAP insurance applied to the vehicles of 3-6 years old.
Do you need more calculative information? Here is an example to make you understand.
For example, your new brand car value is $40,000 and presently you owe $35,000. However, if the car gets totaled, the actual value will come in $32,000, having a deductible amount of $500. So, the accidental value of your car will be $31,500. At this time, the GAP insurance will cover the balance value between the owe value and the accidental value of your car. Hence, the amount will come like $3,500.
If you want to know the benefits of GAP insurance, you must know that GAP insurance value adds additional protection to your car policy. Very often your lender requires GAP insurance along with the comprehensive and collision coverage. In case, you lease the car or heavy trucks, lease GAP insurance also needs to be added within the actual cost. Remember to check all paper coverage to ensure a perfect GAP coverage for your car.
In case, you do not have GAP insurance, they have to continue making payments on the car to clear the outstanding debts. However, if your car meets dangerous accident and turns into a no use matter, it would create cost for you in paying the total amount of debt you have taken to the new car. That is why you should take GAP insurance for protecting your car. You will be happy to know that along with car protection, GAP insurance also covers regular car insurance deductibles. Then why to worry? GAP insurance plan is here to protect your car. Thus, it is the right time to apply for GAP insurance and enjoy a tension free riding life.