Gap Insurance Coverage Explained
There are many terms or types of coverage that people are not familiar with. Gap coverage is no exception to this list, either. Gap insurance is not necessary for many auto insurance policies, and usually is not needed after a couple years of owning a new car.
Gap insurance coverage merely covers you in case your vehicle is not worth as much as you owe. Let’s say that you own a car that is valued at $10,000 by your insurance company, but you still owe $15,000 on the vehicle loan. If you do not carry Gap insurance and the car is totaled, the company will issue a check for only the amount that it is valued for and you are still responsible for paying off the loan even though you have no car.
Doesn’t seem fair, right? Well, when you take out a loan, you promise to pay it back in full, regardless of whether or not you still have the property in question. Since new cars lose value as soon as they drive off the lot, it might be a good idea to have this coverage until the value of the vehicle is equal to the loan amount.
Gap coverage is also used for individuals that think there car is worth more. There are several reasons for thinking that a car should be worth more than its insured value, such as it being an antique or rare car, having numerous upgrades or modifications done to the vehicle. In these cases, the owner is trying to protect their asset for how much they think it is worth.
Certain old or rare cars may not have much real value, but to collectors they can be priceless. Because of this, these Gap coverage’s can be very common in old cars, as well as modified cars. Owners believe that their cars worth is much more than the insured value states and so they want the extra insurance to cover them in case anything happens to the car.
Another way to explain this in a different manner is to think about how certain people may insure their body parts for a monetary amount. This coverage is similar to that because only the owner may see the extra value of the car. Since the value is not what they believe it to be, they will pay extra to insure it for more so they feel that their asset is protected well.
Gap coverage is certainly not an auto insurance type that most people will need, or at least for an extended period of time. It can be useful, especially for those buying new vehicles off the dealers lot, but its use is often short lived. For those who are car collectors, though, it may serve a more important, or even necessary purpose. Especially since certain collectors can be willing to pay hundreds of thousands of dollars for old cars that may have no real value according to insurance companies.
In any event, you may need this coverage sometime in the future, or even now, but just make sure you keep track of your vehicles value and your loan amount so you can cancel the insurance when possible. This is not exactly the cheapest insurance to add on to a policy, so try and keep track to avoid paying for something that is not needed.