Gap Insurance: What You Need to Know
» Posted January 22, 2018 Resources | Share This Post
If you are buying a vehicle, it is important that you understand your rights in case the vehicle turns out to have defects. For example, if you have problems with a new vehicle, contacting a California lemon law attorney could help you to pursue an appropriate legal remedy.
It is also important that you understand your obligations associated with taking an auto loan. For example, if you purchase a vehicle and finance the purchase but the car is totaled in an accident or is stolen, you will still be responsible for paying off the total value of the loan.
Car and Driver recently addressed the risk that car buyers face and provided information on a product called Gap insurance that could provide protection in case of a car accident or auto theft.
Understanding Gap Insurance
According to Car and Driver, while most add-ons from dealers are wasteful purchases, Gap insurance offered by a dealer may have merit-- although deciding whether it should be purchased is complicated.
Gap insurance is an insurance policy you buy in case your car is totaled or is stolen before the loan is paid off. If your car is totaled or stolen and your insurance reimburses you for less than the outstanding balance of your car loan, Gap insurance covers the difference that you owe so you do not have to continue to make car payments on a vehicle that you don't own any more. Gap stands for Guaranteed Asset Protection, and it could save you from facing a substantial amount of financial loss.
Gap insurance may be necessary because there could be a significant difference between the market value of a totaled or stolen car and the balance owed on your loan. A new car or truck loses as much as 20 percent of the total vehicle value as soon as it is driven off the car lot, so if your brand new car was financed for $30,000 and the insurer offers you just $26,000 based on market value after an accident or theft, you'd be out $4,000 that you have to pay back. Gap insurance would pay this substantial sum to the lender to pay off your loan for you.
While Car and Driver indicates that buying gap insurance may be worthwhile to protect you from losses if you purchase a new car with a loan, Car and Driver also suggests it is important to shop around carefully before you purchase a policy. While the dealer offers Gap insurance at the time you buy the car, it could be far cheaper if you purchase Gap insurance from your own insurance carrier rather than from the car dealer. Dealers treat Gap insurance like any other add-on and mark it up to pad profits, so you pay more for the protection that you are buying.
Understanding your rights and obligations can be essential to protecting yourself, so you should research Gap insurance when buying a car. You should also talk with a California lemon law attorney for help if the vehicle you purchase turns out to have serious defects.