What does gap insurance cover?
Whenever you buy a new car, you are always under the stressful situation that you might get involved in an accident or your car might get stolen. You go extra miles to make sure that your car is protected and is always worried about it wherever you go. Thus it is always good to have insurance for your car.
Gap insurance (Guaranteed Auto Protection) cover the following things:
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It covers the theft, in case your car gets stolen and you are unable to provide a track or recover the lost car.
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If the car catches fire due to any accident or any other uncertain disaster, then your insurance may also cover that.
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The major component covered by the gap insurance is the accidents that your car undergoes. From minor to major damage, all the damages are covered under this insurance policy.
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The damage of the car due to any other natural disasters such as flood, volcanic eruption or a hurricane is also the responsibility of the insurance company.
Things that gap insurance doesn’t cover:
As you have got familiar with the major damages that you can overcome from gap insurance, now look at the things that gap insurance doesn’t provide any guarantee for.
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Any part of the car which was not present at the time you bought the car and you installed it later in the car will not be the responsibility of the insurance company. They will only cover the parts that were installed by the factory.
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If there is a loan payment that is pending for a long time and you did not consider it before, that will also not be the responsibility of the insurance.
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If you want to buy gap insurance, for that you need to have the basic car insurance first. If you haven’t taken it, then you are not eligible for the gap insurance.
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In case of a leased car, you would be having any deposits related to the security are any penalties related to finance, that would also not be covered by the gap insurance.
How does gap insurance work?
The Guaranteed Auto Protection fills the gap between what was the actual price of the car when you bought it and what is the price after years or months when your car has been damaged or got stolen. In order to understand this let’s look at an example:
For example: You bought a new car for $20,000 but after a year it gets stolen and you are left with all the stress and worry. Immediately you will go to your car insurance company (if you have taken any) and you will ask for the payment. They will pay you according to the current value of the car no matter how less it is. Let’s say over one year; the car value has reduced to $14,000 so you will be paid this amount. Now, what about the loss of $6000? This is where the gap insurance will enter. It will help you to overcome this loss of $6000 and will recover it for you.
When do you need to take the gap insurance?
If you already have a car insurance then you might be wondering that why gap insurance is worth taking for. So consider the following reasons and if you think anyone of them is your case, then you should buy it.
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The car that you have bought has a history of losing value quickly.
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You had as less as 20% of the down payment for your car at the time of purchase.
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In case you have bought a car on loan, then the period of loan payment is great such as 3 to 5 years. In this situation if you get any damage then you will have a double burden, to pay the loan as well as the car’s whole damage cost. So gap insurance is a perfect safe side for you.
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The usage of the car is very high for example you have a lot of members at your home and everyone uses the singular car. This reduces the age of the car and it might lose the value very quickly.
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If you have signed any contract for a certain period of time and after that you have to return the car, then you need to have this insurance because in case if gets stolen or damage you need to have the whole payment for the damage or the loss.
What are the different types of gap insurance?
| Types | Explanation |
|---|---|
| 1). Finance gap insurance | If you have borrowed money from any place in order to buy a car, this insurance will fill the gap for the debts that you have to pay. |
| 2). Return to voice gap insurance | In case your car undergoes a great damage, they will fill the gap between what the insurance company is paying and how much was the actual price. |
| 3).Vehicle replacement gap insurance | This type of insurance has been designed to compensate for the loss you might face if the price of the car has risen or the discount that you got while purchasing the car and the car might not be available in the future. It gives you your money back so that you may buy a new one. |
How much is the cost of gap insurance?
This table shows an annual cost of gap insurance from state to state.
| No. | State | Average |
|---|---|---|
| 1 | Louisiana | $2,389 |
| 2 | Florida | $2,239 |
| 3 | Texas | $2,050 |
| 4 | California | $1,968 |
| 5 | Georgia | $1,936 |
| 6 | DC | $1,928 |
| 7 | Rhode Island | $1,918 |
| 8 | South Carolina | $1,759 |
| 9 | Delaware | $1,757 |
| 10 | Colorado | $1,741 |
| 11 | Montana | $1,693 |
| 12 | Connecticut | $1,688 |
| 13 | Wyoming | $1,684 |
| 14 | Kentucky | $1,621 |
| 15 | Arkansas | $1,620 |
| 16 | Mississippi | $1,580 |
| 17 | Nevada | $1,570 |
| 18 | New Jersey | $1,558 |
| 19 | Arizona | $1,557 |
| 20 | New Mexico | $1,479 |
| 21 | Oklahoma | $1,468 |
| 22 | Maryland | $1,467 |
| 23 | Minnesota | $1,453 |
| 24 | West Virginia | $1,451 |
| 25 | Alabama | $1,449 |
| 26 | Illinois | $1,434 |
| 27 | Kansas | $1,432 |
| 28 | Washington | $1,426 |
| 29 | Missouri | $1,411 |
| 30 | South Dakota | $1,394 |
| 31 | Nebraska | $1,365 |
| 32 | North Carolina | $1,359 |
| 33 | Tennessee | $1,357 |
| 34 | Alaska | $1,337 |
| 35 | Oregon | $1,327 |
| 36 | New York | $1,320 |
| 37 | Utah | $1,300 |
| 38 | Hawaii | $1,295 |
| 39 | Vermont | $1,294 |
| 40 | Massachusetts | $1,275 |
| 41 | Pennsylvania | $1,270 |
| 42 | Virginia | $1,270 |
| 43 | North Dakota | $1,229 |
| 44 | Indiana | $1,213 |
| 45 | Iowa | $1,123 |
| 46 | Idaho | $1,062 |
| 47 | Wisconsin | $1,049 |
| 48 | Ohio | $1,034 |
| 49 | New Hampshire | $985 |
| 50 | Maine | $912 |
Frequently Asked Questions:
I. Who offers the best gap insurance?
The companies that are known for the best gap insurance policies throughout the world are:
a) All state insurance company (U.S)
b) State Farm insurance company (U.S)
c) AAA (American Automobile Association)
d) Progressive casualty insurance company
However if you are looking for companies in other regions then you should consider them according to the state you live in.
II. How long is gap insurance valid for?
Usually the gap insurance’s validity is for 1 to 2 years, after that you will have to pay for the car’s actual price. But this again depends upon the state and the company you are opting for so it cannot always be the same case.
III. Can I remove the insurance by myself?
Yes, you can remove it if you feel like it is not beneficial for you or you no longer need it. Most of the companies offer the refund of your money if you remove or disassociate from the insurance. The refund will depend upon the length of the insurance that you had opted for.
IV. Will gap insurance pay for a new car?
The function of the gap insurance is to just fill any financial gaps that are left between the loss and the actual value of the car. In case of a new car, it will help you financially to make ensure you are easily able to buy a new vehicle that you wish to buy.
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