Most of the insurance policies provide partial coverage of your total expenses and you are left with some out-of-pocket payments at the end of every claim made to the company. Even when your car is totaled you only receive the Actual Cash Value from the company and there is always a “gap” between the fair market value and unpaid lease or loan amount. So what do you do to waive off such payments? There certainly seems to be a ray of hope. All you need to do is purchase a Gap insurance policy for your car.

Gap Insurance – What it covers

Gap car insurance refers to Guaranteed Auto Protection, covers the “gap” between the Actual Cash Value (ACV) of your car and the amount of the actual loan owed, when the car is totaled. It is the type of auto insurance that covers any losses that arise when the amount of compensation you receive from the total loss does not fully cover the loan amount (or lease payment) you owe.

Features of gap insurance

1.    It is a low cost plan which requires one-time payment.
2.    In addition to the deficiency, it covers auto insurance deductibles up to $500.
3.    It provides protection to both new as well as old vehicles.
4.    It pays benefit upto $50000.

Benefits of gap insurance

Given below are some of the benefits of having a Gap Insurance.

1. Cost of depreciation covered: You know that your new car would depreciate from the moment you drive off from the dealer’s lot. If you get involved in an accident the insurer would pay you only the ACV which would be far less than the amount you owe. So it is here that the gap insurance comes into act.

2. Eases financial burden with loss of vehicle: When you purchase a car with a long term loan, it may take several years before you have any equity on the car. In the event that you meet with an accident, your gap insurance makes sure that you are properly covered.

Drawbacks of gap insurance

Here are the following drawbacks of this policy:

1. Requires collision and comprehensive coverage: Most gap insurers include this coverage as an eligibility requirement for buying the policy.

2. Complying with the lease agreement: Your gap insurance comes into act only if you comply with the terms of a car lease agreement.

Gap insurance is becoming popular where standard policy does not apply. But before applying for such a policy, you need to go through the terms and conditions carefully as they tend to differ considerably. There are some companies which offer total gap coverage while some decline from paying the deductibles. Eligibility requirements differ from company to company. You need to go through the rules and guidelines of the insurance company before purchasing a policy.

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