Imagine that you are involved in an automobile accident, your car is totaled, and you still owe money on your loan; however, the market value of your car has depreciated so that your insurance only pays for its current value – not the value of the loan that you originally took out. You are stuck with thousands of dollars to pay out-of-pocket – which is where GAP insurance comes in. GAP stands for Guaranteed Auto Protection, and its purpose is to bridge the “gap” between the amount you still owe on your loan and the current market value of the car. Take a look at these four reasons that GAP insurance is helpful after a car accident in Alabama.
Comprehensive and collision insurance only covers the car’s current fair market value.
Auto insurance that doesn’t extend to GAP insurance determines its payout based on what the car is worth at the current moment. However, the value of a car depreciates steeply after purchase; factors such as mileage, type of vehicle, and time elapsed ensure that the vehicle can be worth only a fraction of the original purchase price by the time the collision occurs. At that point, the insurance company will only cover the cost that the car has depreciated to, and the car owner will then be left having to cover the rest of the money owed out of pocket. GAP insurance ensures that car owners won’t be left paying for a vehicle that they can no longer use by covering the difference between the current market value of the car and the amount still owed.
Cars that depreciate quickly need GAP insurance the most.
If your car travels over 15,000 miles annually, GAP insurance is the safest option; cars that travel farther tend to depreciate more quickly because of the effect that the mileage has upon the vehicle. According to DMV.org, experts estimate that vehicles depreciate by 15% to 25% every year; after 5 years, a vehicle is only worth 37% of its original value.
GAP insurance works for both new and used vehicles.
No matter the make and model, whether the car was new or used, or how large the down payment was, GAP insurance will cover all vehicles. In fact, you may be required to purchase GAP insurance when leasing a car.
You can and should get refunded if you do not use your GAP insurance.
If you sell or refinance your car and your GAP insurance remains unused, you are eligible for a refund; contact your insurance provider to discuss the details of your refund. If you pay off the loan on your vehicle, GAP insurance is no longer needed; therefore, you can end your insurance payments, although you usually cannot get refunded.
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