In a new FAQ, the writers at OnlineAutoInsurance.com discuss the pros of purchasing GAP insurance for a car purchased with a loan.
Online PR News – 28-April-2011 – – Since purchasing a new car is such a big investment, it’s necessary to consider the proper ways to protect that investment through a car insurance policy. One of the important auto insurance coverage questions that new-car buyers should consider is whether to purchase GAP (Guaranteed Auto Protection) coverage. In a new FAQ, the writers at OnlineAutoInsurance.com explain just what a GAP policy is and how it works.
For those who pay for the complete cost of a new car up front, GAP coverage will not be a necessity. But those who finance the purchase through a loan should seriously take it into consideration.
First of all, consumers taking out a loan to purchase a car are typically required by the lender to get comprehensive and collision coverage in order to insure against any physical damage to the vehicle. But if the car ends up getting totaled, the writers at OAI point out, these coverages pay only up to the car’s market value. The loan amount, on the other hand, is typically based on the value of a completely unused vehicle. The difference between the market value and the loan amount is the gap that GAP insurance covers.
OAI breaks down GAP in the following example: Say a person owes $29,000 on a car loan for a $30,000 car. Since he has already driven the auto off the lot, it has depreciated, and the market value is now $24,000. The car gets totaled. Collision coverage covers up to the current market value of the car: $24,000. But there’s still the $5,000 difference between the market value and the loan amount. If he has GAP, he would likely owe nothing. If he did not have GAP, he would be on the hook for the extra $5,000.
Another route to take is to arrange a collateral exchange with the lender. In this type of agreement, the outstanding loan amount could be transferred to a loan used for a replacement vehicle.
To learn more about this and other insurance issues, readers can go to http://www.onlineautoinsurance.com/learn/ where visitors will find informative resource pages as well as a quote-comparison generator that can help jump-start the search for an affordably priced policy.