GAP Car Insurance-Do You Need It?

If you finance a new or used vehicle, you may be required to carry GAP (guaranteed asset protection) insurance. This type of insurance reimburses the insured with the complete financed amount of the car, not just the vehicle's current value, in the event of a total loss. Contact your potential insurance carrier to investigate the regulations concerning GAP insurance as well as the costs associated with this specific form of insurance.

Do not risk unnecessary financial burden by not carrying GAP insurance. Protect your investment as well as your financial stability with the purchase of affordable GAP insurance. For example, if you purchase a car for $20,000 and finance it, you are more than likely going to be upside down on your loan as soon as you drive out of the dealership. A few months of driving later, can leave you with a 20% loss of your vehicle's purchase price.

However, if you bought GAP insurance and financed it with your car loan, you do not have to worry about losing value on your vehicle in the event of a total loss. Of course, there are a few exceptions. If you put a large deposit down (25% or more), or received financial credit for a trade in, you might not need GAP insurance. This is because the chances of becoming "upside down" (owing more than the car is worth) in the loan are negligible in these two circumstances.

Benefits of GAP insurance

GAP insurance is not expensive, yet provides benefits that far outweigh its cost. For example, some of the benefits drivers can expect from carrying GAP insurance are:

Peace of mind: In the unfortunate event of the total loss of your car, GAP insurance covers the cost to replace your vehicle in its current state. Each insurance carrier has financial limits that GAP insurance pays. However, most of these limits are in excess of $50,000.

Financial and credit protection: Drivers who do not to carry GAP insurance are responsible for the additional costs (any difference between the car's financed amount and current value) of replacing their vehicles. For example, in some cases, the difference between the current value of the vehicle and the amount financed can be more than $5000. Having to cover this cost can greatly affect your finances as well as your credit score if you cover the expense with a credit card.

Used and leased cars

Carrying GAP insurance on a used vehicle can be somewhat tricky. In some cases, if you finance a used vehicle for an extended term such as 60 or 72 months, insurance carriers may require GAP insurance. However, if you purchase an affordable vehicle with cash, the financial benefits of GAP insurance may not be in your best interest.

Most leased vehicles include GAP insurance in their financing plans. However, make sure to read and understand the specifics of how GAP insurance applies to a leased vehicle before purchase. Be sure to discuss the specific guidelines of your insurance company to ensure optimal protection on your vehicle.

After-market accessories and OEM

Many car owners choose to add after-market parts to their vehicle. Some of these accessories include body kits, spoilers, and racing suspensions. It is vital that drivers report any additions as the vehicle's value adjusts after each accessory. This is especially true in the event of the total loss of the car.

Choosing the repairs on a totaled car has its own set of unique circumstances. This includes deciding whether or not to use OEM (original equipment manufacturer) or after-market parts. Some insurance companies require the use of after-market items, as they are cost efficient. However, in the case of respected makes such as Mercedes and BMW using non-OEM parts decreases the value of the vehicle. This does not affect insurance costs, but makes trying to sell a vehicle with non-OEM parts can significantly harder as it reduces the vehicle's value.

Latest Insurance Articles

Defensive Driving Techniques
Sadly, there were more than 40,000 auto-related deaths in 2006 and 2.6 million people with injuries from traffic accidents according to the National Institute for Highway Safety.

Glossary Auto Insurance
It is extremely important that each driver understands the fundamental basics of auto insurance before buying coverage. Know exactly what you are buying, and what your policy will include.

How to Select Auto Insurance from Quotes
In every state, there are multiple insurance carriers.