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Gap Warranty Insurance, the Bridge between Value and the Price Tag

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Gap Warranty Insurance, the Bridge between Value and the Price Tag

GAP insurance, which is also popularly called as loan-lease payoff coverage is meant to ensure a real value protection to the vehicle owners during the early years of their car’s life in case of a complete write off of the asset (vehicle) due to accident or theft.

If the insurer has to suffer any loss during the initial years of purchasing a BMW, Audi, Volkswagen, or any other models of a car, GAP insurance will act as a saviour by paying the difference between ACV (Actual Cash Value) of the vehicle and the outstanding balance of the loan or lease on the vehicle. Some GAP insurance policies will also pay off the regular insurance, which is deductible.

GAP warranty to bridge between price tag and value

Once if your vehicle is totalled by any sort of insurance-covered peril, fire, theft, accident, riot, or natural calamity, insurance company will pay you the actual cash value of your vehicle. In real, you should know that this actual cash value is not the purchase invoice amount, but the current value of your vehicle after deducting the depreciation. This amount most of the times will be much lesser than the amount you still owe to the financial institution from where you took a loan for the vehicle purchase.

In such cases when the amount of the ACV is lesser than what you owe to the lender, it will naturally incur a loss by creating a ‘gap’. Most of the first-time car owners don’t have a perfect idea about the depreciation happening on a new car. One should know that just within a few minutes of driving after the purchase itself, a new car will turn out to be 10% lesser worth than what you have just paid for it.

Car owners also have a misassumption that in case of the vehicle getting totalled, it will be compensated with the full amount they have paid or at least what they owe to the lender. As this is not the actual fact, GAP warranty becomes vital in such unfortunate situations where the insurer writes off your vehicle.

Cost of GAP warranty insurance

If you are planning to purchase a GAP cover from the car insurance company itself, then it may typically cost you higher when compared to what the general insurance providers offer. Most of the insurers will also add this GAP insurance to their collision coverage. Vehicle dealers typically charge 50 to 80% higher than the baseline GAP insurance policies offered by the online insurance.

Is purchasing GAP possible without a primary insurance?

No, it is mandatory to have a primary insurance to avail the benefit of a GAP insurance. You will be eligible for a GAP insurance only if you purchase a primary insurance. GAP insurance is not basically meant to cover the full amount. The liability of the physical damage and full coverage is the liability of the lien holder and GAP typically covers and difference only.

It is also worthwhile to know that GAP insurance can be purchased on a used vehicle also. There are some regulations to guide the process of offering GAP coverage for used vehicles, and various policies are available for used vehicles also now.

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