Automobile insurance is a prerequisite to driving, although not all insurance plans have the same level of coverage. In particular, many car insurance policies don't include one of the most important coverages an automobile-owner can have: gap insurance. This article outlines what gap coverage does for a policy holder and why it's something nearly every driver can benefit from having.
What Does It Do
Gap coverage is an invaluable component of insurance policies for drivers who have financed their vehicles, but it is also beneficial for those who fear the value of their vehicle may depreciate faster than the rate at which they are paying off their loan. This is how gap coverage works:
Suppose you finance a new vehicle that costs $20,000. After a couple years of making payments, suppose you still owe $15,000. If you were then involved in an accident that totaled the vehicle, a standard insurance policy might not cover the $15,000 you still owe. If the vehicle only had a market value of $12,000, you would still be responsible for paying the remaining $3,000 left on the loan.
However, if you have gap coverage on your insurance policy, you needn't worry about this scenario. With gap coverage, your insurance provider guarantees that, in the event of a total loss, they will cover the difference in what you owe on your vehicle and the current market value of the vehicle.
When You Should Consider Adding Gap Coverage
Gap coverage is something to consider for any whose vehicle was purchased with financing. However, there are certain instances where gap coverage is more important. In particular, those who are either leasing a vehicle, who have financed a vehicle over a period of time greater than 60 months, who put down less than 20% of the vehicle's value as a down-payment, or who regularly put a lot of miles on their vehicle should consider adding gap coverage to their policy. All of the aforementioned scenarios lead to accelerated depreciation of an automobile and thus an increased chance of finding yourself 'under water' (owing more than the vehicle is worth) on the vehicle's loan.
While it varies among insurance providers, most gap coverage policies only add $20-$30 per year for the additional coverage. At that price, there simply aren't that many vehicle loans that wouldn't benefit from adding such coverage to an existing policy.
Overall, the cost-to-benefit ratio regarding gap insurance coverage is often so low that adding it to an existing insurance policy is almost always the most economical decision. Not only will it ensure that you're not stuck owing money on a totaled vehicle, but it will put you at ease when you're on the road. For more information, contact a local insurance company, like Budget Bi-Rite Insurance Agency.Share