When you buy a new vehicle from a dealership, the salesperson will ask you if you want Guaranteed Auto Protection (GAP insurance). Due to the increase in the cost of owning a vehicle along with lengthy tenures, insurance companies introduced this offering to consumers.
Imagine a situation where you are driving a vehicle you purchased from a dealership. However, you meet an accident, which totals your automobile. In this situation, you get in touch with your insurance provider so that you can get coverage for the damages. However, you find out that the vendor will only cover for the value of the vehicle, not the amount you have to pay the lender.
What does it cover?
The advantage of gap insurance is that it covers the amount remaining in your credit, even after receiving funds from your primary insurance provider. Most of the vendors who provide this type of coverage will give you the necessary funds, during natural disasters, vandalism, theft, and fire. Also, if the gap insurance accounts for deductibles, keep in mind that you will not get this amount as a refund. The insurance provider will apply it to how much you owe to the lender.
There are several situations where gap insurance doesn’t provide coverage. Due to this reason, it is essential you go through the documents carefully before signing them. For instance, if you have third-party accessories installed in your vehicle, gap insurance won’t cover them.
Should you get gap insurance?
Regardless of your financial situation, it is always a great idea to get gap insurance. Here is an example, which will help you understand its advantages. Imagine you have a vehicle that is worth $30,000 and you have been driving it around Canada for several years. The current value of the automobile is $15,000, and you still have to pay the lender $20,000. If you meet with an accident and your vehicle gets destroyed, the insurance company will give you $15,000. However, you still have to pay the lender $5,000 as it is part of your loan. When you get gap insurance, it will cover this additional amount.
The next time you want to purchase a vehicle by financing it, make sure you ask the insurance provider about gap insurance!