What is GAP insurance? What does it do for the insurer? Will it pay for the deductible on your primary insura
Gap Insyrance is a great thing to have if you are financing a new car or truck. You will have to have full coverage to finance a new vehicle. Also ask your dealer about gap insurance. If you should total your vehicle your full coverage will only pay a certain amount. But if you have Gap insurance the gap will pay the rest owed on your vehicle. Also they will pay your beductible. It is wise to have gap because my grandson just totaled a new Truck and his regular insurance only paid a percentage of what was owed on the truck.But he had a gap policy also and it paid the rest.
GAP insurance is great if you know your going to go upside down on your vehicle. (value of car less then payoff amount) Basically, they will pay off the difference between depreciated value of vehicle (if totalled) and principle balance of the loan. Some will pay a capped amount on the deductible. If you can, I would recommend getting it through your primary insurance provider. I am going through a claim right now and the GAP people want a rather large list of documents. I finally sent them the last document a few days ago.
Answers:
GAP coverage does NOT pay your deductible. What does it do for the insurer? Same as any other part of car insurance - it's a line of coverage, and it can make money for the company.
What it DOES, is it pays the difference between actual cash value of the car, and financed value of the car, if the car is totalled while you owe more on it than it's worth - which is usually the first three years. It does NOT pay off any additional loan amounts, like the negative equity from your old car, that you rolled into this loan.
Example: Say you buy a $20,000 car. The second you drive it off the lot, it's now used, and worth maybe $17,000. But you have interest and finance fees, and it takes 12 payments (interest is deducted, remember? so only the principal amount counts) to pay off that $3,000 loss from buying the car. Only now, the car is SIX MONTHS OLD, and has 10,000 miles on it, so it's gone down ANOTHER $2,000 in value.
These things depreciate like wildfire for the first two years, then slow down for another two years. Then it levels off, after 4 years. So GAP coverage is to help the car buyer pay off the loan in case of an accident, if they didn't put much money down on it.
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