When Should I consider Purchasing Gap Auto Insurance
Gap auto insurance refers to a type of policy taken by auto owners to cover for the amount of an auto loan that may not be covered by the ordinary comprehensive and collision covers. As it were, in the event of an accident or a vehicle being stolen, those ordinary comprehensive and collision covers only pay for what is considered a reasonable market value of the car you would have lost. In almost all cases, the figure paid as such is never enough to fully pay for the auto loan you took to buy the car. In fact, it could be as much as 15% or even 20% short of the amount you would be owed for the car at the time of the theft or accident – leaving you paying thousands of dollars for a car you have already lost.
It is not that insurers are necessarily unfair in the auto-valuation assessments. It is just that the showroom price of the car – the figure that you pay for the car with the auto loan – is more often than not a poor reflection of its fair market value. The minute you pay for the car and drive it away, its value immediately falls (sometimes by as much as 20%), yet the auto loan you took to buy the car remains intact, and actually starts growing via interest.
Therefore, it is highly advisable to consider purchasing gap auto insurance if you are purchasing your vehicle through an auto loan – as many people do – and if you don’t want to find yourself paying for a vehicle that you no longer have. It is particularly imperative that you purchase auto insurance if:
- The down payment for the car amounts to less than a fifth of its value.
- If your vehicle finance period is long (more than 36) months.
- If the car you have purchased is an expensive one, as expensive cars endure a greater loss of market value once they are driven out of showroom, and are also more attractive to car thieves.
- Speaking of car thieves, if you have just purchased a new car with an auto loan, and the area you live in is notorious for car thefts, you are well advised to take gap auto insurance.
If you are leasing a vehicle, purchasing gap auto insurance may not be a matter of choice. Many car lease companies require their customers to purchase gap insurance to protect the car lease company's interests should the car get stolen or be involved in an accident during the lease. In fact, the requirement for gap auto insurance on car leases is fast turning into a government requirement and, in states like New York, car lease companies are required by law to include the cost of gap car insurance in the cost of the lease itself. This is mainly done in recognition of the risky nature of the car lease business.
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