Are you going to purchase a new car that you need to insure? If so, you'll definitely want to know more about GAP insurance as you decide on how much insurance you need.
What Is GAP Insurance?
GAP insurance is designed to protect vehicle owners when they purchase a car with financing. This is because the insurance provider will only pay for the actual cash value of a car, rather than the amount that is still owed on a loan. If you were to get into a major accident soon after the vehicle was purchased, know that it is very possible that your car insurance will not pay off the entire loan.
This type of situation is where GAP insurance comes into play. GAP insurance will pay for the remaining value of your loan that is beyond the cash value of the vehicle. This ensures that you are not stuck paying off a vehicle that is totaled.
When Can You Purchase GAP Insurance?
GAP insurance can be purchased at any time while you own your vehicle. However, one thing to keep in mind is that GAP insurance is typically cheaper when purchased at the time that you get your vehicle. Purchasing GAP insurance later on could result in paying more at each insurance renewal period.
When Can You Cancel GAP Insurance?
It is possible to cancel GAP insurance at any time if you no longer feel that you need it. It makes the most sense to get rid of gap insurance when the cash value of your vehicle is less than the amount that you owe on it. This is because totaling your vehicle will result in a larger enough payment to pay off your loan, and GAP insurance is not necessary.
How Is The Payment For GAP Insurance Calculated?
The way that a GAP insurance payment is calculated is quite simple. For example, if you had a $10,000 balance left on your car loan, but the car's value was only $8,000, then you would receive a $2,000 payment due to GAP insurance to cover the difference. If your car's value was $7,000, then the GAP insurance payment would be $3,000. It really doesn't matter how big the gap is between the car's actual cash value and the amount that you still owe since that is what GAP insurance is designed to cover.
Reach out to an auto insurance company for more information about GAP insurance.