Thursday December 19, 2013
For many drivers, finding the most affordable insurance coverage is the main objective. No one wants to pay good money after bad to pay for something they hope they will never use. However, when you decide to finance an automobile with a loan that you will need to be able to live for several years, additional insurance coverage becomes a primary concern. Collision coverage is usually required for any car that you finance, and many drivers choose to add comprehensive coverage, but your auto dealer or insurance agent may offer you something else: GAP auto coverage.
Gap insurance is often misunderstood, although many insured drivers believe it is will cover the gaps that other parts of their coverage leaves out. This can be true in some cases, but the reality of gap coverage is a bit more complex. GAP is actually an acronym for “guaranteed auto protection” pitched as a way to mitigate losses when your car is totaled. Sometimes, this can seem like a waste of money. But in many ways, gap coverage can be a simple and affordable solution to a very real issue with car ownership.
In contrast to other real property, cars begin losing their value immediately. According to Edmonds, one of the top auto appraisers, your new car will drop approximately 9% of its value within one minute after you drive it off of the lot. After four years of ownership, your car will lose over half of its original value. When you finance a new car, interest rates almost ensure that you will be “upside down”, meaning that what you owe on your vehicle will exceed the vehicles value for at least the first two years of ownership.
This is where gap auto coverage can help. In addition to collision and comprehensive coverage, gap coverage will help take care of the difference when replacement costs don’t cover the cost of your loan. In effect, this type of coverage is meant to guarantee that a total loss of your vehicle doesn’t end up costing you money long after you have moved on to a new vehicle. Gap policies can be structured to protect your specific financial loan situation and prepare for unforeseen events that can leave you reeling.
Beyond the Myth – Good Coverage, Affordable Rates, and Gap Coverage
Unfortunately, many people have unrealistic expectations when they think of gap auto coverage. Contrary to commonly help beliefs, gap insurance coverage does not help you pay for insurance premiums due to financial hardships, it does not pay for repairs to your vehicle, and it does not extend any type of warranty on your vehicle. Gap coverage is not meant to cover your loss when your car is repossessed for lack of payment, nor does it cover expenses like rental cars when you get in an accident.
What gap auto coverage can provide is the security in knowing that a totaling accident won’t cause you to lose lots of money through your auto loan. In certain cases, gap insurance can also help you pay deductible amounts that make replacing a totaled vehicle difficult. Because the inherent problems involved with car value depreciation and non-payment can cost auto loan providers a lot of money, many loan agreements include gap coverage to protect you, and your loan.
Dos and Don’ts of Deciding on the Right Policy
Gap insurance is not effective in “filling in the gaps” of an inferior policy. Designing a good policy for you means choosing a premium that you can afford that provides coverage for unexpected events. Collision coverage (required by your lender) helps you pay to repair your car after an accident. Comprehensive insurance covers your car in the event of theft, vandalism, or a weather related incident. Other types of coverage options include medical coverage, which pays no-fault medical expenses for you and other drivers, uninsured or underinsured motorist coverage actually does “fill in the gaps” when another driver’s insurance doesn’t completely pay for their liability damages.
For some drivers, gap auto coverage can be an affordable and prudent option, adding around 5% to 6% on top of their insurance premiums. For other drivers, establishing a good policy that covers you comprehensively, and includes medical coverage and uninsured motorist protection, might be the best option. Whether you are looking to find coverage for a new car or your old faithful automobile, your phone call to Insurance By Phone can put you in touch with a knowledgeable agent that can help you navigate the insurance market. Your car may be losing its value, but that doesn’t mean you can’t find affordable auto coverage that works for you.
CC Image courtesy of adamr