GAP insurance coverage – Simple Explanation of GAP Coverage Option
Not everyone can afford to purchase a brand new car outright. Therefore, a lot of people resort to some form of personal finance such as loans to fund their purchase. In order to keep payments low, many car insurance companies or banks offer long term payment of up to 6 year for brand new cars.
As the price of new cars depreciate or decrease very fast, buyers of brand new car can expect a significant drop of their car value of few thousand $ before it’s parked in their drive way. If you buy a car worth $30,000 and keep it for around a week, your auto value may drop right down to a market value of $25,000. In the event of an accident, your insurance policy will just pay out the market price of the vehicle. In our example, it will be $25,000. This creates a scenario where you'll be liable for the remaining $5,000 to pay to your garage for a vehicle you no longer have.
This is where GAP coverage option assist. If it’s included in your policy, it'll cover the additional depreciation costs which is not included by default in more insurance policies. lets back again to our example above with a GAP insurance coverage, the insurance firm will pay out $25,000 + an additional “gap” of $5,000 made available through the GAP coverage option.
Most insurance firms will strongly recommending having this option for new auto, but some vehicle garages will require it before selling the vehicle to insure it’s paid off by GAP insurance in case it’s totaled following an accident.
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