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GAP Insurance – What Texas New Car Owners Need to Know
Congratulations on your new car purchase! It’s an exciting time, but not one to be taken lightly. There are many responsibilities and expenses associated with a new car, and making sure that you have adequate Texas auto insurance is one of them.
In general, having auto insurance protects you, your car, and others from the financial impact of any damage or accidents that may occur. While there are many types of auto insurance to purchase, one important type of insurance you should consider is Guaranteed Auto Protection (GAP) insurance. Typically, this type of insurance covers the difference between the amount you owe on your car loan and the value of your car.
If you purchased a new car in the last 12-18 months, you may recall the salesman pitching you on the importance of GAP Insurance. Odds are you “shut down” the purse strings; half listened and said “no thanks”. You just spent a ton of money on a new car after all, why increase your monthly car expense even more? The truth is… the salesman was right. For many new car owners, GAP Insurance can be an important protectant against financial loss. Especially for those drivers prone to auto accidents.
How Does GAP Insurance Work?
In a simple example, you bought a new car for $25,000, paid $1,000 for your down payment, and your monthly payments are $300. However, after five months, you are involved in an accident and your car is now totalled. The insurance company calculates that your once-new car is now worth only $20,000, which is the amount they will pay to you.
When you combine your down payment with your five monthly payments (for a total of $2,500), you find you still owe $22,500 ($25,000 – $2,500) on your car. Your GAP insurance would cover the difference between what you owe on the car ($22,500) and what your collision insurance would cover ($20,000), which is $2,500… the gap between the two.
GAP Insurance protects you against having to cut a check for the difference between what you owe, and what your car is worth after an accident. Once you have made enough payments on the vehicle, and are not upside down on it anymore, you should consider dropping your GAP Insurance because it won’t benefit you anymore. Since each auto purchase or auto lease is slightly different for a number of factors, you’ll have to calculate when you are no longer upside down on your loan anymore, then call your insurance company and drop your GAP Insurance.
Should Everyone have GAP Insurance?
It sounds like a good deal. But should everyone in Texas get GAP insurance? Anyone who has purchased a new car with a low down payment and has a high interest rate, or a long-term loan (more than 60 months) can benefit from getting GAP insurance. You can buy GAP insurance from a finance company at the time when you make your purchase, but you can get it from a national or Texas auto insurance agent as well.
Of course, if you have positioned both your down payment and your monthly payments so that you won’t be upside-down for a long period of time, then chances are you won’t need GAP insurance. And of course, if you think it is worth the risk, going without GAP insurance may be a calculated risk if you are a very safe driver.
If you own your car outright, there is no need for GAP insurance at all. Or if you put enough down at the time of purchase, either with cash or a down payment, you may not need GAP Insurance. The key is to determine if the vehicle is worth more than you owe. As long as it is, GAP Insurance should be a consideration for you.
When Would You Use Your GAP Insurance?
In the most basic instance, if your car is either stolen or damaged so much so that your repairs would cost more than the value of the car, and you are still making payments, then that is the time to use your GAP insurance.
GAP insurance is also needed if you have leased a car because you still need to cover the cost of the car if it has been totalled or stolen. This is especially important because the amount of your lease payments would be much less as compared to the value of the car, making the need for GAP insurance all the more necessary. And some leasing businesses require it. To give you an idea of what you may need to pay if you don’t have GAP insurance on your leased car, consider this simple formula:
(What you owe on the lease)
– (insurance company payment received)
= (amount you are still personally must cover)
But that’s not all. GAP insurance can cover more than that. Common situations that are often covered by GAP insurance include auto theft, vandalism, fire, and accident, plus weather-related situations such as floods, hurricanes, and tornadoes.
What GAP Insurance Doesn’t Cover
On the other hand, it is equally as important to know what GAP insurance doesn’t cover. Some examples include unpaid or overdue loan payments, vehicles that were not covered by both collision and comprehensive auto insurance, any item or equipment on your car that wasn’t factory-installed, and money you received from a trade-in when making your car purchase.
Keep in mind that the situations above are only common examples, and that your GAP insurance policy may be different. Get to know your policy, check about what is both covered and excluded, and ask when you have questions.
A car is one of the most expensive purchases you may ever make, so why leave such an asset unprotected? GAP insurance not only provides the protection you need, but peace of mind as well. With the auto insurance quote portal on this site, you can get up to eight auto insurance quotes, and specific that you are in need of GAP insurance as well. The more you shop around, the more money you will save on your Texas auto insurance.
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