And More Importantly, Do You Need It?
Did you know that Tom Jones’ chest hair is insured for $7 million?
It seems like these days, there’s no limit to the different types of insurance available. While a lot of them are plain ridiculous, there are many types of insurance that are genuinely helpful. Especially to the average person, whose chest hair may not get the widespread appreciation it deserves.
For car owners, gap insurance is one of those types of insurance. And like your chest hair, often it doesn’t get the appreciation it deserves. But that’s just an assumption on our part…
The ‘Gap’ in ‘Gap Insurance’
The ‘gap’ in ‘gap insurance’ refers to the difference between the market value of your vehicle and the outstanding balance of your car loan. This ‘gap’ is what most people are liable to pay if their car is lost, stolen or damaged while they are still in the process of paying off the loan.
In the vast majority of cases, the market value of your vehicle will begin to decrease from the moment you drive it. If you’ve had your car for five years and still have a substantial amount owing, the difference between the current market value and the remaining loan amount would have to be paid out of your pocket should your vehicle be declared a ‘Total Loss’ – even if you have an existing comprehensive insurance policy.
What Does Gap Insurance Cover?
In the event your vehicle is declared a ‘Total Loss,’ gap insurance covers you for the outstanding balance on your loan – the ‘gap’ – up to $15,000. This is quite a large financial shortfall; a shortfall that many people are surprised by when confronted with the reality of having to pay.
Gap insurance can provide you with an additional $4,000 to cover ‘out-of-pocket expenses’ if your car is lost, stolen or damaged. Even in the event there is no financial shortfall, you will still be eligible to receive up to $2,000 for these related expenses.
‘Many drivers, when they first begin financing their vehicle, select a comprehensive insurance policy thinking that it will cover them in any scenario.’
Gap insurance allows you to purchase peace of mind for the full term of your loan, with four levels of cover available for different types of needs.
Who Will Benefit from Gap Insurance?
Many drivers, when they first begin financing their vehicle, select a comprehensive insurance policy thinking that it will completely cover them in any scenario.
However, this is not necessarily true. If your vehicle is subject to a ‘Total Loss’ insurance claim, you are still liable to pay the difference between the amount owing to your lender and the market value of your vehicle at the date of the Total Loss.
Under these circumstances, gap insurance could be beneficial to anyone who has an existing car loan. From the moment you secure your loan to the end of the loan term, gap insurance has the potential to save you whatever you would otherwise have to pay out of pocket.
Even if you have an existing comprehensive insurance policy, if you are still in the process of paying off the loan on your vehicle you will not necessarily be covered for the remainder of that loan in the event of a ‘Total Loss.’
Should your car be lost, stolen or damaged beyond repair, without gap insurance you are liable to pay any existing difference between the market value of your vehicle and the amount owing to your lender.
Gap insurance provides cover for a ‘gap’ of up to $15,000, as well as up to $4,000 in cover for additional out-of-pocket expenses. Even with a comprehensive insurance policy, without gap insurance you could still be liable to cover these costs yourself.