Gap Coverage Insurance & Gap Protection
Gap Coverage Insurance & Gap Protection.
Today we are going to focus on a car loan product that some of you guys may already know something about and others I would assume the majority probably do not and that is something called gap insurance.
Now I try to provide complete information about Gap Coverage Insurance & Gap Protection, so please if you find it helpful then drop a comment.
I want to tackle this is just kind of ask what I think are the important questions that you guys should ask about the product and really let you determine whether it is something that you should get or you shouldn’t get it.
So first of all what is gap coverage now when you get a car loan and only when you get a car loan if you buy a car in cash you will never be asked to purchase gap insurance.
Gap insurance is essentially additional coverage that protects you if you are in an accident right and the insurance company to check that they give you for your vehicle when if they happen to total the car out is not enough to pay off the loan.
I hope that makes sense that I’ll try and simplify it a little bit let’s say you get a car loan for $10,000 right unfortunately you know maybe a year later you are involved in a major accident.
And the insurance simply totals your car they are going to give you a check for that vehicle they’re going to know, tell you this is what your cars worth therefore here’s a check there you go for your vehicle well what if you still owe like nine thousand on that car and the check is only four seven thousand dollars.
You still owe $2,000 because your loans for nine thousand and that seven thousand dollar check is not going to be enough to cover that car loan.
So what would happen if you don’t have gap coverage?
You are not going to be able to be done with that loan right away.
You and the banker can have to come to some sort of agreement on that remaining $2,000.
If you have gap coverage or gap insurance you don’t have to worry about it because the lender is saying don’t worry we will cover that at that remaining dollar amount.
If you are involved in an accident the insurance company can’t pay for everything we will cover the gap so that’s what, it really is just extra protection overall.
I think it’s a beneficial product for some people but again let’s keep talking about a few more aspects to it because not everyone should get it.
And question number two is going to be how much does gap cost and I’ll be honest with you I’m not gonna be able to provide you a whole lot of answers here.
Because every institution is different, when I started out working there it was like 279 dollars did not matter if I was buying some f-150 truck if I was buying a Hyundai Elantra or a Mercedes it was $279 no matter what now over time I think that price increased toward now it’s 350 dollars but every financial institution is going to be different.
Some companies may charge less some companies may charge more you know you can also purchase back coverage through the dealership and they tend to be really expensive with their gap coverage.
I’ve seen some dealerships charge like $600 or more so you know to pay attention if you are going to get gap coverage when it comes to price because if they’re offering you some ridiculous dollar amount just walk away because it’s not worth it.
Especially if you’re going to be financing the loan through like a financial institution rather than the dealership they will more than likely have better gap prices so more than likely you’ll want to stay away from getting gap coverage through the dealership.
Now another thing about the dollar amount is a lot of people will ask do I need to pay for it upfront how do I pay for this gap coverage.
Most institutions both the dealership banks credit unions they will say you’ve got two choices you can either pay it upfront or we can just roll it into the loan amount.
So if you really do want to have gap coverage but for whatever reason, you think I can’t really I don’t want to pay $300 or whatever that dollar amount is most of the time you can roll it into the loan itself.
I’m not saying that’s a good or bad thing I’m just letting you know that’s kind of how it works.
Question number three who should get gap coverage right and not everyone should get it but who how do you determine whether you should or not and it’s really pretty simple what it really comes down, did you overpay for your vehicle or is your loan upside down.
In case you don’t know what your loan to value ratio is but it’s essential you know how much is your loan for your car compared to how much it’s actually worth.
If you owe more than your cars actually work well then you’re in a good position to benefit from gap coverage because if you are involved in an accident more than likely the insurance company is not available to pay off the full loan amount.
Because you’ve overpaid right you have a larger loan in what your car is worth so these are the type of people that would benefit from having gap insurance.
I want to say just add a little bit higher level of risk exposure due to their high loan-to-value ratio so I think those are the people that would benefit from getting it.
Now I will say here it doesn’t necessarily matter if you’re doing this just when you buy a car you know when you refinance the car you’re going to be offered gap coverage again mainly when you refinance through another institution. If I’m buying I’m refinancing if I’m doing a cash-out refinance you know all of these situations could involve the loan becoming higher than what the car is worth.
So those are all the times that you should look into getting gap coverage.
Now question number four who should not get gap coverage now this one’s pretty simple you know if I just said that the people that should get gap coverage for the people that owe more than what the car is actually worth.
Well, then the opposite is true for the people that should not get it right if you owe $10,000 on a vehicle that’s worth $20,000.
Well, you more than likely don’t need a gap because if you are involved in an accident the cars worth about 20,000 the insurance company is clearly going to give you a check that should easily pay off your $10,000 car loan and you’ll still have money left over.
So if you have equity in your vehicle if you owe less than what the car is worth, no there’s really no point in getting gap insurance.
You already learned a position to where you have equity another person that should not get gap coverage or at least not right away.
Some people will try and haggle with the dealership to get the best deal possible on a car loan or a car purchase and so what they’ll do is say hey you know dealership I will finance with you guys I don’t care what the interest rate is.
I just want you to bring the price of the car as low as possible right and they’re doing this because they know that they’re going to refinance that car.
Maybe in the next week or two right so if they know that they’re going to be taking this car loan to another institution.
In a few weeks by refinancing it they shouldn’t purchase a gap twice you don’t want to purchase a gap through a dealership then refinance it then have to pay gap all over because when you refinance it it’s a whole new loan right that gap coverage.
That you may have purchased you know two years ago does not carry over when you refinance so that’s another thing I am not going to address that as a question but just it’s good to know the aspect of gap coverage.
When you refinance you kind of lose your gap coverage because a refinance that makes it a new loan so those are the people that do not need to worry about gap coverage.
The people that have equity or they’re purchasing a car from a dealership knowing full well that they’re going to be refinancing it shortly because you don’t want to pay for coverage twice.
Now the last question and it’s not a huge deal is can I cancel my gap coverage this is going to be again different from every institution.
I can only tell you what my credit union had done and that is you know you can cancel it within 60 days.
So if you just got a car loan through a dealership and my gap coverage is really really high you may want to cancel it.
Or if you bought a car through a dealership and you know that you’re going to refinance it, pretty soon you may want to cancel it or at least see if you can cancel it.
I would assume in most institutions and dealerships as well, should have some sort of window that you can’t opt-out of it or cancel it and get a refund.
That’s what I wanted to talk about today guide gap coverage it’s really simple stuff but at the end of the day, it’s important to know about this stuff because in all honesty a lot of banks and all the car dealerships even if you don’t need it is probably going to try and sell you on the stuff.
Thing that you do so educate yourself come prepared to understand that you know they’re looking to make as much money as possible and don’t let that come off of you.
So comment below if you did purchase gap coverage and you know maybe you got a really good price on it or you purchase gap coverage and unfortunately you’re involved in an accident.
So I think you have got the main points of Gap Coverage Insurance & Gap Protection. If any query please write to us we will try to solve that query.
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