Auto insurance and Gap protection, the insiders’ story.
It seems that nowadays there is an insurance for everything. When you ride a bus, a percentage of the ticket price is to fund your insurance. When you take a flight a large part of the cost of flying is spent on insurance. Going to school, buying at your local supermarket, riding a roller coaster, manufacturing and selling anything all require generous dosages of insurance.
Auto insurance is no exception, nearly every driving activity has its own special insurance. You need liability insurance to even own a car legally If you drive outside the country you are going to need extra insurance. If you own any accessories in the car or you can’t afford to buy another car if yours is stolen, you need insurance for theft.
There are so many kinds of insurance for so many eventualities that you might be surprised to find there is a gap protection insurance also. A gap between what? Can they fit any more insurances? The answer is yes. Although it is true that our “developed” world has no shortage of insurances it is also true that it has no shortage of caveats, clauses and lawyers. Auto insurances provide a service, a very useful service, nevertheless they are out there to make a profit. Profits aren’t made by paying for every claim that is made.
There are also ocassions when insurance although claimed and approved does not supply the funds necessary to cover the loss. This is the raison d’etre of Gap protections. This is better explained with an example. Imagine you have adequate insurance, you are a planner and you always plan for every eventuality. This is why you have a fully comprehensive insurance. Unfortunately you crash straight into a brick wall totaling your three year old car. The ice on the road was not your fault but you can’t blame anybody else either. Your insurance will pay for your damage but only up to a percentage (this varies between policies, typically around 80%). That is great. You paid 14,000 dollars for your car 3 years ago, you still half to pay for 8,000 dollars and the market value of the car is 6,000 dollars. The insurance company might pay 80% of the market value, 4,800 dollars. That leaves you with 8,000 dollars minus your super settlement of 4,800 dollars. In other words you are out of pocket by 3,200 dollars. That is assuming you don’t have a deductible on your damages insurance. If you do, add that to your out of pocket figure.
Gap protection would have avoided that. Gap protection will cover the gap between the amount you receive in settlement for your claim, the deficiency balance with a total loss, and will pay for the deductible on your insurance. Add to this any delinquent payments like taxes and past due charges which are also settled by the Gap insurance. Most Gap insurances also include theft insurance, making it a nice piece of insurance if you haven’t spent all your income on the other 20 insurances you have.