What is Gap Insurance
Need of Gap Insurance
Let’s use this example to understand the need of gap insurance. Supposedly, you have bought a car worth $30,000 and have paid $4,000 as down and the remaining $26,000 is financed. In this case you need to carry the full coverage for collision and comprehensive insurance worth $26,000.
If after a year you pay $3,000, you still carry collision insurance with damage worth $26,000. Now, if you are in an accident that completely totals your car then you might be looking forward to cash in you insurance check which you suppose to be of $26,000.
But, unfortunately your car insurance company will cover only $20,000 worth of damages that has been caused to your car. This because of the fact that the replacement value of your car is $20,000. On the other hand, you still need to pay $23,000 to the bank. So you are falling short of $3,000.
When there is a situation like this, the difference is covered by gap insurance. Legally, it is not mandatory to purchase Gap insurance. However, if you are in situation as stated in the above example, it would be wise to purchase one. So, it is better to buy gap insurance when you have made a small down payment for a car that comes with a big price.
Where To Get Gap Insurance And Why
It is the auto dealerships that usually sell Gap insurance. So you should probably look for Gap insurance when you are purchasing a car. However, it is not impossible to get a Gap Insurance from an insurance agent. In general, you are supposed to pay a sum of $30 every month for Gap Insurance to your dealer. However, some dealers might ask for a one time payment of $300. It depends upon you whether you think that it is worth it or not.
Before investing your money you need to consider the risk and rewards related to it. Is it worth paying $300 for your protection? How fast will the value of your car depreciate? What are the chances of you being in an accident? You need to answer these questions yourself before purchasing a Gap Insurance.
Review Your Policies
The above example brings up a good point forth. Why should you for a $26,000 insurance coverage for your car when the replacement is only $20,000? This like throwing your hard earned money. This is the reason that many experts recommend to shop for an insurance policy and get the best deal before you invest your money.
However, it is seen that many people pay no heed to this advice and end up spending more money as monthly premium. How nice would it be if you would be one of those wise people who listened to this kind of advice and saved their money? You can get quite a few examples of people who surfed online to get the best deal for car insurance and they actually increased their coverage and at the same time lowered their monthly premium. It depends upon you how do you want to spend your money that you have earned by putting in great efforts.
