The GAP in the GAP insurance stands for Guaranteed Auto Protection. Money Crashers defined it as a type of car insurance that typically covers the amount of money between the money you owe on your auto loan and the compensation that your insurance company will pay in cases when there are losses incurred. It particularly happens when the car’s retail price is higher than its resale value, and you are unable to recover the extra car loan costs such as registration fees, sales taxes, and title fees.
A GAP insurance was first established by the financial industry in North America. However, it’s not really a common policy in other countries primarily, because people either pay in full payment or installment when purchasing a car. Once the buyer has completed the payment, he or she gets the car, along with the documents, from the dealer.
Average Cost of a GAP Insurance
Considering that a GAP insurance is for cars, you may avail it directly from your car dealership. Apparently, there are many car dealerships that offer such insurance policy, and the average GAP insurance cost, if you choose to purchase it from your dealer, ranges from $500 to $1,000. It does have a high cost, and what’s worse is that it usually requires a large initial payment.
However, there are cases when insurance companies offer this type of insurance policy at lesser prices. According to Bill Pearse of Travelers Insurance, the GAP insurance rate is approximately 5 to 6 percent of the collision and comprehensive insurance coverage you have set for your car.
Let’s say that your annual premium is $1,400, and the coverage for the collision and comprehensive is around $420 to $560, so taking the 5 to 6 percent of the coverage gives $21 to $34 for the GAP insurance cost. As your car ages, the GAP cost decreases together with the collision and comprehensive cost.
“It’s the belief that you can only purchase it from the vehicle manufacturer at the time of sale,” Pearse said. “The truth is that you can purchase it anytime and insurance companies are less expensive.”
People Who Should have a GAP Insurance
Pearse further revealed that those people who have auto loans and haven’t placed a significant down payment are recommended to purchase a GAP insurance plan. Aside from that criterion, persons who fall under the following situations are also candidates for a GAP insurance:
– You have leased a vehicle and put a downpayment of less than 20 percent.
– You are financing a car for five years or more.
– The equity from your previous auto loan has rolled negatively into a new loan.
– You have driven your car over 15,000 miles per year on average.
– And if you have bought a car that has a record of high depreciation rates.
Points to Remember Before Buying a GAP Insurance
– Make sure that you really need to have a GAP insurance. You already know the conditions, so if you have managed to purchase your car without any problems, then there is no need for a GAP insurance.
– As much as possible, check your auto insurance policy if it covers a GAP insurance. If the GAP is included, then you don’t have to purchase one.
– Find out if you can cancel the GAP insurance whenever you feel like there is no need to have one.