When you buy a car it is most likely that you are aware about GAP insurance. The insurer from whom you take the car insurance policy will apprise you about it. But there is a catch to it. If you are buying the car with your own money then you do not need it. However, it is necessary to know what the insurance policy covers and what are the things that are excluded? When you buy an insurance policy, it is perhaps more important to know about the exclusions so that you are not caught unaware at a later stage and have to bear the financial liability despite having an insurance policy. Here are five important things that you should be aware about GAP auto insurance.
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GAP insurance coverage
What is the extent of coverage that you can expect from GAP insurance? Losses to your vehicle arising from natural disasters like flood, hurricanes and tornados or fire and vandalism including theft are all covered by GAP insurance. The coverage is identical to what is covered by your comprehensive and collision insurance car policy. Your insurance deductible will also be covered. The question that you might ask is – then what is the purpose of having GAP insurance if the coverage is same as the comprehensive car policy?
The specialty of GAP insurance
GAP insurance takes off from the point where the comprehensive and collision car policy ends. Presuming that you purchased a car by taking loan that has to be paid back in about 5 to 7 years and have bundled all other expenses like taxes and duties into the loan package then you are an ideal candidate for GAP insurance. In case the car gets damaged so badly that the insure considers it to be a total loss then you are paid the book value of the vehicle. This amount is likely to be quite low as compared to what you owe to the financial company. GAP insurance now comes into play and compensates the shortfall thereby protecting you from any financial loss.
GAP insurance eligibility
Although any car owner is at liberty to take GAP insurance, those who use the financing route for car purchase are the best candidates for GAP insurance. But one thing has to be borne in mind, the auto loan has to be a traditional auto loan and not any other form of financing like home equity line of credit.
Gap insurance is an add on
One important thing is that GAP insurance is applicable only if the other car insurance policies like liability insurance and comprehensive and collision car insurance are in place. It is not allowed to buy GAP insurance policy in isolation but it is an add-on to the basic car insurance policies.
Where to buy?
The insurance policy can be purchased from any insurer from whom you buy the other car insurance policies. Car dealers also sell GAP insurance policies but may be expensive. It should cost about 5 to 6 percent of the comprehensive car policy.