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GAP Car Insurance Coverage: Guaranteed Auto Protection

The quick depreciation of new cars is well known and well documented these days. Statistics vary but a brand new car certainly loses value quickly during the first few months of ownership. Add that depreciation to the longer-life loans most people need and you can quickly owe more than your new car is worth, particularly if you either don’t make a down payment or your down payment is low. What happens if you have an accident during the time you owe more than the car is worth? If the car is deemed a total loss by the insurance company, you are responsible for both the deductible and the difference in its value and what you owe, unless you have GAP  auto insurance coverage.  People serious about having fully comprehensive car insurance coverage will want to consider having this type of coverage for their vehicle.

What is GAP Car Insurance?

GAP stands for Guaranteed Auto Protection and can be the difference between owing a significant amount of money on a car you no longer have and being able to easily get a replacement vehicle. Here is an example: You purchase a new car for $20,000 and after financing and all, your loan is for $22,000. You have a small down payment, perhaps just a couple of hundred dollars. You are immediately upside down on your loan, meaning you owe more than the car is actually worth.

When Car GAP Insurance Would Be Useful

You drive the car for six months and then you have an accident. The car is declared a total loss, meaning the insurance company will buy the car from you rather than have it repaired. Sounds good, right? The insurance company will use various methods to determine the Actual Cash Value of your vehicle. It wouldn’t be unusual for a car that originally cost $20,000 to be only worth $18,000 six months later. However, you still owe $20,000. Who has to pay the $2,000 difference in the remainder of your loan and the ACV the insurance company is willing to pay?

If you don’t have GAP car insurance coverage, the answer is that you are responsible for that difference. In this instance GAP coverage is a great idea. It isn’t always, though. Here is another example: You buy a slightly used car for $12,000 and have a trade-in worth $1,500 and a $1,500 down payment, so you only need to finance $9,000. After financing you owe $10,000. Since you bought a used car, the depreciation is a little slower. Following the same scenario, you have an accident six months after your purchase and the car is totaled.

Most New GAP Car Insurance is Easy to Buy

If the insurance company determines the ACV of your car to be $9,000 and that is the amount you have left on your loan, you are in fine shape and there is no need for GAP coverage. The need for GAP coverage varies from case to case. It depends on the type of car you purchase, what kind of financing you obtain, how much of a down payment you make, as well as other factors. While most new GAP car insurance policies are sometimes a little bit expensive, most can often be purchased with one payment. But remember that if you don’t need it, you shouldn’t spend the money for this type of coverage.

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