If you are an owner of a car you must have come across the term GAP insurance. This form of insurance applies in cases of any kind of auto accidents that lead to complete destruction of vehicles. The insurance package allows you to be compensated for your car if you have a loan. While the calculations can get a bit tricky, let’s take a look at how you can calculate it. If you have such an insurance for your car and you are involved in a car accident on your vehicle, you will be paid the difference between what your insurance package pays out from the insurance company and the amount of your outstanding loan the car. This will allow you to repay the pending loan installments on your vehicle at one go.
Is it Necessary?
Before we discuss if GAP insurance is necessary or not, you should know that this insurance is not a part of the law. It is completely up to you if you want to get such insurance or not. It is heavily recommended that you get such insurance if there is a huge gap between your insured amount and the pending loan of the car that you owe to the car dealership or any financial institution that you had taken the car loan from.
Who needs it?
People who overpay for their vehicles or people who make little or no down payment when they take cars on a loan are the people who should have GAP insurance. You do not want to have a huge sum of money pending on your loan and the meeting with a car accident where you completely destroy your car. So if you feel that you have been very slow in paying off your car loan debt, you should definitely get this type of insurance. Considering the fact that your car is slowly depreciating over time, having such an insurance package will allow you to prevent total losses.
In most cases you can get your insurance directly from dealers. Even if you are getting a used car you should ask the dealership if they provide GAP solutions. It’s not something you necessarily need, but it’s something that’s nice to have in case you meet with an accident, after all, prevention is better than cure. Before finalizing on an insurance package you should calculate the gap between your insurance policy and the pending car loan amount to see if it’s really worth it or not. If the gap is not huge, then it’s probably well advised to not invest in an insurance package.
How much does it Cost?
The cost of a GAP protection insurance can cost you anything from $250 to $600 for the lifetime of the loan. Most GAP policies can be cancelled at will within a specified time frame and you may get a refund after you pay the necessary administration costs. It’s advisable you cancel your policy in case you are able to prematurely pay off your car loan or sell your vehicle.