GAP insurance is quite the debacle when it comes to paying for auto insurance. However, if one has loaned a vehicle, it is a must-have. Some states even have it as a requirement when you get a loan. But why is that exactly? Why would you need extra coverage for your vehicle?
Well, you never know when you’re going to wreck your or total your car. This can be quite a problem if you still have a hefty remaining balance. Having GAP insurance in Texas especially can be a lifesaver in the case your loaned vehicle gets stolen or you have an accident.
So, what is GAP insurance? How do you get it? And how much should you pay for it? The following piece shows you everything:
What is GAP Insurance?
GAP means Guaranteed Asset Protection, and it’s an insurance for vehicle loaners. Any vehicle loses its market value once it is taken out of the showroom. The same goes for loaned vehicles. When you get a vehicle on loan from the bank, it loses its market value with time and more miles.
So, if this vehicle is wrecked or stolen, you’ll still have to return the remaining balance to the lender. Your regular auto insurance will only reimburse you with the car’s market value. As mentioned above, this won’t be enough to cover the outstanding balance.
Now, imagine paying for a vehicle that is of no use to you, or isn’t even accessible to you. If you just started your loan plan, you’ll owe the lender most of the vehicle’s value. In this case, you are much better off with GAP insurance.
Your regular insurance will pay you the car’s value. GAP insurance will cover the amount that remains. This is why the system is known as a guaranteed protection of your asset. It also covers the gap between your car’s depreciated value and the remaining payment you need to make.
When is GAP Insurance Useful?
As soon as you take the first drive in your vehicle. Vehicle depreciation is very real and it’s one of the few reasons why a vehicle is considered a liability. Studies indicate that a vehicle’s price drops by at least 20 percent when you add your first miles to its odometer.
This is one of the reasons why it isn’t recommended to loan a vehicle. You’re paying more for an object that will get less valuable over the years. But the real problem starts when you completely wreck the vehicle. In simple terms, this is called totalling a vehicle.
This means that it won’t run and it’s essentially useless. If it does run, it’s not safe to take out on the road. The end result is that you’ll have to scrap it and get an insurance claim. A vehicle like this is usually more expensive to repair than its market value.
Stolen vehicles cannot even be scrapped unfortunately. Unless its recovered, you’re a goner. If you live in Texas, you’re prone to vehicle theft as it is the state with one of the highest numbers of stolen vehicles. Thousands of them are stolen each year and that’s a fact.
In both of the cases above, the lender won’t care that the vehicle is of no use to you. They want their money back, and they want it with the interest that you agreed to pay them. An insurance claim will get you the money, but not all of it. But fret not, this is when your GAP insurance plan will save the day.
How GAP Insurance is Calculated
Let’s try to get this right with an example. Let’s say that your vehicle costs about 35 thousand dollars. You’ve paid about 5 thousand dollars and then your vehicle gets totalled somehow. If it’s valued at 20,000 dollars; that’s what you’ll get from the insurance company.
But what about the remaining 15 thousand dollars? That’s where the GAP insurance comes in, if you have it. The insurance pays you that amount, which would’ve gone from your own wallet. And remember, this is for a car that is useless now to you. Even thinking of paying that amount is cringey.
Do I Need GAP Insurance?
In a state like Texas, you definitely do. The AAA states that there were 65 thousand vehicles stolen in Texas last year. Even scarier is that 200,000 vehicles were burglarized. So, if you don’t have GAP insurance, you can easily fall into a money death trap.
Some other considerations include where you are on your auto loan. If you have to pay more than the vehicle’s worth, then this insurance is definitely what you need. Accidents don’t tell you when they’re going to happen and a crash might not be your fault at all.
You need to consider your financial capabilities if your car is totalled. Almost 1500 people died last year due to severe road accidents this year, while more than 10 thousand accidents happen every year. If you’ve got a couple of years of payments left and/or you’ve paid a small down payment, consider it.
How To Get GAP Insurance?
The process varies by company. First of all, you need to find out who’s offering this coverage. If you live in Texas, you can find these companies from the official government website that gives insurance info. Find a company and inquire about their plan. Just make sure that you’re eligible for it.
Conclusion – Should you go big on guaranteed asset protection?
With that, you’re obviously more aware of the advantages of GAP insurance. So yes, the obvious choice is to get the best GAP insurance plan that you can get. It will save you from paying from your own pocket if you get a total loss on your loaned vehicle.
In a state like Texas, where havoc can wreak at any time and any place; it’s better to be safe than sorry. Find the best plan and get your vehicle insured now. Thanks for reading our article and hope you choose the best solution!
