Gap coverage is an important tool for protecting your finances. GAP coverage basically protects the buyer in situations when the vehicle they financed turns out to be significantly more than what was paid for. GAP insurance is designed to compensate the buyer if the vehicle they financed turns out to be a “buyer’s market”. This basically means that the market has driven up the price of vehicles so much that it is difficult for many people to get them financed. Gap coverage compensates for this by making up the difference between what the buyer would have paid for the vehicle and what they actually end up paying for it.
DescriptionIn order to get a full coverage gap insurance policy, the buyer of the vehicle must be the named owner. There are also different types of gap insurance policies available depending on who is the named owner. The insured may be the named owner, an authorized person or an authorized third party. There is also a slight variation for some Gap policies depending on which state you live in, but the general idea is that if you were to lose your vehicle because of circumstances beyond your control (ie, if you are involved in a car accident), then you will be financially protected.
A lot of people purchase vehicles based purely on getting great insurance quotes. But even though the rates may be competitive, there are actually many instances where people who purchase vehicles with great quotes discover that they end up paying less in the end because of gap coverage. The most common situation in which gap coverage helps reduce your auto insurance premiums is if you are involved in a collision. This situation is why Gap insurance is sometimes referred to as Full Coverage Auto Insurance or Floor Insurance. If you were to damage your vehicle beyond repair and you are required by law to get full coverage, then your auto loan company may require you to purchase an approved policy which covers the gap in your auto loan.
When you have collision coverage on your auto loan, it means that you will be fully covered even if your vehicle damages beyond repair. Your auto insurance company will send you a check to cover the damages to your car. Depending on whether your vehicle is financed through the dealership, your bank, or through a private lender, the amount of coverage that you are required to purchase can vary. In many cases, companies require that you buy a certain amount of coverage to meet their requirement, but often it is a lot less than the full retail value of your automobile. So, if you owe ten thousand dollars worth of damages to a fire or another event and you only purchased a policy that required twenty-five thousand dollars worth of coverage, chances are good that you will not have enough coverage to pay off your car loan when you finally do pay it off.
It is difficult to predict how much your vehicle will be worth at any given moment in time. There are so many factors affecting the value of cars and vehicles and the industry has made many improvements to its estimates over the years. However, no one can honestly predict what the market will look like in a few months or even a few years from now. The estimates that car companies make today about current market values may no longer be as accurate as they were a few years ago. Many factors contribute to the final value of your automobile. If you owe more on your vehicle than its current fair market value, you may still want to purchase gap insurance.
A gap insurance policy covers the difference between your actual fair market value and the total amount you still owe on your automobile loan. Gap coverage can help relieve some of the strain that comes with balancing your budget. With this type of coverage, you will either pay the entire amount owed or the difference will be covered by your gap insurance policy. If you owe more than the market value of your vehicle, the gap coverage may not be sufficient to pay for the total owed. In this case, you may still need to work with your automobile loan provider to find a way to pay off your loan before you sell your vehicle.
Even if you do not owe more than the market value of your vehicle, you may want to consider gap insurance just to be on the safe side. If you have an expensive repair bill coming due, a gap insurance policy can help you avoid paying more than you owe. This kind of coverage is typically available to anyone who has a financed vehicle. However, those who own their own cars can apply for coverage if they meet the requirements.
Gap coverage is often a requirement when someone purchases a brand new car. This coverage is also commonly required when a person purchases a used vehicle. The reason for this is that the vehicle is considered to be a total loss. The insurance company will often require that the buyer put up at least twenty-five percent of the price of the vehicle towards any remaining balance that would cover expenses if the vehicle were to be totaled. Gap insurance coverage pays out the difference if there is a total loss. It can be an excellent financial protection plan, and it can save you from being responsible for a large amount of the repair costs for your vehicle.