Is Gap Auto Insurance Worth Considering?
A number of people out there today aren’t aware of gap insurance and assume it to be something expensive and complex to understand. Just putting in a little time and effort should be sufficient to help you understand how this works.
Before delving right into the crux of the matter, you need to be familiar with the definition of gap insurance. Neglecting property, a number of other assets are prone to losing value over a period of time. Once a vehicle is being used, it starts falling in value. In fact, it loses 25% of its value the moment it leaves the showroom. Insurance firms compute the disbursement in case of collisions based on the value of the car prior to the collision. The vehicles are consequently either termed as slightly used, or heavily used. The sad aspect of this is that cars which have been driven even for 10 miles are categorized as slightly used, and the value considered is usually the depreciated value of the vehicle.
Consider the scenario when you recently purchased a new vehicle that could be a sedan or a station wagon, moved it out of the showroom and are driving towards home. Despite being overly cautious with your vehicle, stopping at all red lights in advance and looking around while driving, it is possible that a truck simply rams into your car from the side or from the rear, causing a lot of damage to your vehicle. This is a horrible scenario to be in, but is unfortunately not the absolute worst that could happen.
Your vehicle lost at least 25% of its original value from the very second that you left the showroom. Hence, the insurance firm is going to inform you that the car at the time of the collision was not really what you paid for it, and that the amount that will be considered is considering that the car was slightly used. Therefore, the insurance company is going to compute the disbursements based on the lowered value. The other aspect that can be traumatizing is that you might still owe the manufacturer the cost of a brand new car, despite getting lesser from the insurance firms.
In addition to getting a blow to your finances, you now have a new car that is damaged. You are going to be spending a lot to get it fixed and in most cases, the standard collision cover that might be provided to you would be quite useless. While this is not something that is commonplace, it is still something noteworthy for people to keep in mind. The fix to such a problem would probably be to go in for Gap Insurance. With this, you will be covered for the depreciated value as well, and not have to suffer a huge financial setback. If, for example, your car lost a value of around $10,000 when you drove it out of the showroom, then the gap insurance will cover that and you will be paid depending on the value of the vehicle without the depreciation factor being considered.
When gap insurance is taken into account, the value that is considered is going to be the money that you still need to pay to the car company or the leasing agency. Hence, it is clear that gap insurance is applicable to the vehicle that is purchased on an installment basis. When you look back, this might have seemed like a beneficial thing, but as time moves on, the money that you owe the financial institution reduces and at this point, gap insurance becomes unnecessary.
Many car owners are unaware as to how depreciation actually works and this is something that causes a direct impact. Consequently, they don’t go in for gap insurance and this is what might cause them a huge financial problem down the line, if they are ever involved in an accident.
Going back to the conundrum, is gap car insurance something that suits you? Well, the answer is actually dependent on you, as it is definitely recommended for slightly used cars. Cars that are very old will not benefit much from this.