As the name indicates, gap insurance for cars is optional insurance for cars. The primary purpose of gap insurance is to cover the gap between the actual value of your vehicle and the amount that the owner had spent in buying the car. In this way, you can avoid the massive bills associated with your vehicle.
This article will introduce you to gap insurance for cars and give you in-depth knowledge of its benefits.
What is gap insurance for cars?
Remember that gap insurance is not the mandatory part of car insurance, and it is only an optional add-on to your car insurance. The primary purpose of this type of insurance is to allow the drivers to cover the gap between the actual cash value and the amount they owe on the car. So the need for gap insurance arises at the time of accidents or any other damages that may occur to your vehicle.
Here it is worth mentioning that your car’s cash value is the monetary value of your vehicle at the time of the accident and not the original price.
Why is gap insurance vital for particular cases?
If you want to opt for car gap insurance, you should consider adding it to your collision insurance policy because it is the type of insurance that will help you at the time of accidents. In addition, it will play a vital role in compensating the differences between the balance of the lease or a loan due on your vehicle and the amount that the insurance company will pay as compensation after an accident because you had opted for the collision insurance policy.
If you have not opted for gap insurance, the difference between the amount you receive from your insurance company and that you owe can be very large. Gap insurance covers the substantial difference between your car’s actual value and what the insurance company will pay you.
So if you want to add more protection to your car insurance, you should proceed with gap insurance for your automobile.
Why does the lender require gap insurance?
While financing your vehicle with a car loan, comprehensive and collision insurance will not be enough. Instead, the lender will also require you to provide the details about the gap insurance for your vehicle. So while proceeding with the collision coverage, you should also ensure that you have gap insurance. In this way, you can avoid future obstacles.
What does actual cash value determine, and why is gap insurance still important?
Remember that the collision coverage will compensate only for your car’s actual value whenever a collision or an accident occurs. The car’s actual value is the value of your vehicle at the time of the accident and not the original price of your vehicle that you initially paid.
So even if you have lost the car in an accident, you will be compensated only for your car’s actual value, which will be much less than the original value you initially paid. Actual Car Value (ACV) is equal to the cost of your car when it was new—minus depreciation for age, mileage, physical condition, and other factors.
So, if you have lost your automobile in an accident after two or three years, its actual car value will be thousands less than its original value.
Here comes the role of gap insurance in the picture.
The gap insurance mainly provides coverage, especially for vehicles that are six years older. The best part about gap insurance is that it covers the gap between the car’s actual value and its original value. And in some cases, it compensates for most of your loss.
What does gap insurance cover?
We have been discussing the role of gap insurance, but it is also important to mention that gap insurance is only for vehicles and does not apply to the damages done to your body or property.
Let’s have a look at the common questions about gap insurance so that you’ll also get an idea of its application and usage.
Does gap insurance cover theft?
When it comes to stolen automobiles, gap insurance does cover theft. So, if you have opted for gap insurance and your car is stolen, you can take benefits associated with gap insurance.
Does gap insurance cover your deductible costs?
Unfortunately, gap insurance only covers the gap between the car’s actual value and the original value while it does not cover the deductibles. In other words, if the “gap” reimbursement amount is $4,000 and your deductible is $500, your total reimbursement amount would be $3,500.
Does gap insurance cover negative equity?
The concept of gap insurance for cars can be easily understood from the negative equity definition. There is a close relationship between negative equity and the car’s original and actual value gap. In other words, we can say that the primary purpose of gap insurance is to cover the negative equity.
So, it would be very suitable to say that gap insurance for cars does cover negative equity.
In most cases, when a severe accident happens, there are strong chances that your vehicle gets badly damaged and beyond repair at this stage.
When you cannot proceed with the recovery of your car, you may want to replace it with a new one.
Unfortunately, the insurance company only pays you the amount equal to the car’s actual value (The amount of the vehicle at the time of the accident). So, if you want to buy a new car, it becomes difficult for you because the car’s value is often much less than the vehicle’s original value. The gap insurance for cars covers this loss and makes it possible for you to purchase a new car.