Posts Tagged ‘insurance’
How Can Gap Insurance Protect You
Written by admin under Car Accidents
Tags: auto insurance, auto loan, cost of acquisition, depreciation, gap insurance, insurance
Imagine that you have just got yourself a new car and it is fully covered by auto insurance. You drive it from the showroom to your home. Within a week you have a bad accident and your car is totaled for the insurance compensation. You would expect to get a full coverage because it’s not even a day since your purchase. But do you think the car will be valued at it’s cost of acquisition?
The truth is that once a car leaves the parking lot, the cost is immediately depreciated by a huge amount which is 10 to 20 percent of it’s actual cost. For example if you paid $30,000 to buy the car and your car gets totaled for the accident after a week of it’s purchase. If you have taken an auto loan for your car and made a down payment, then you are still to pay the full amount towards the loan.
Despite this, what you can expect to receive after the accident will be the fair market value of the car and not the actual cost of purchase, even if you have a comprehensive insurance coverage. This is because your car is devalued by the depreciation percentage once it has left the dealer’s lot. So, your car will be valued at twenty percent lower than the original cost for the compensation.
In other words, you have paid the twenty percent from your own pocket as the insurance company will not cover for that component despite your vehicle being only a week old. However, if you had bought gap insurance, then you will be covered for this difference and there will be no out of pocket expenses. For this you will need to be sure that your insurer provides gap insurance.
In that case you can separately purchase gap insurance for your car. Gap insurance is the insurance covering the vehicle for the differential between the cost of the car and the fair market value of the car determined by the insurance agency. By taking gap insurance with your auto insurance policy , you can ensure that you are protected against financial losses in case of any accident when you don’t get compensated for the entire acquisition cost by the auto insurance provider.
