Most important question you need to ask when opting for GAP insurance with the car insurance company

Car insurance companies always offer better rate than auto dealerships, due to the difference in taxes, so it’s always better to buy insurance directly from the company. There are many different types of insurance that are being offered to car owners, and one of the additional coverage available is GAP insurance, which growing more and more popular.

What is GAP insurance?

GAP insurance is a security measure of sorts, which protects your budget in case your car gets written off or stolen, by covering the gap between the original value of the vehicle and the estimated value which insurance company pays you.

Buying a new car is considered a bad investment, when considered as strictly economical, since every new car starts losing value the minute it leaves the dealership’s lot. Statistics indicate that at the moment of purchase, car has already lost 11% of its original value, and, in the course of the next 3 years, it might lose up to 50-60% of its value. This is really important to note, since car deprecation is one of the main reasons behind taking out GAP insurance, since the estimated value that insurance companies pay out will use the depreciated value into consideration, and not what you paid for initially. That means if the car you bought two days ago gets stolen, insurance companies will not pay out the price you paid, but the depreciated value of the car, which leaves you at loss even that soon, and at even bigger loss later.

What should I ask the insurance company?

The most important question to ask the insurance firm is- do I really need GAP insurance? Sure, it is a good thing to invest to, since you can never know when you might need to, and the average price that puts GAP insurance rates at 5% of your basic insurance plan, it isn’t that much of a cost. But, do you really need to pay for it?

GAP insurance is created for people who are at risk of losing money on their car due to depreciation rates, or people who could end up paying for a totalled or stolen car. So the recommended groups include people who:

  • are leasing their car
  • have vehicles with higher depreciation rate
  • have loan payoff periods over 5 years
  • have paid less than 20% for their vehicle up until the moment of insuring

People who don’t have to take out this type of insurance are people who aren’t at risk to end up paying more than their car’s actual value or people who used cash to pay the whole price of the car, or had big down payments on the car, since they are not at risk to have a negative balance in case something happens to the car. Even though GAP insurance can be a life-saver, for some categories of car owners it could be an unnecessary additional expense. So, always ask around for your options and decide if GAP insurance is really a good choice for you.