Having car insurance can help a lot with problems regarding car accidents. It can offer different benefits depending on the plan you choose, but everything revolves on your vehicle. If your car is stolen or can no longer operate due to a collision, your insurance will cover a part of it, but gap insurance can help you more.
Basically, it is a type of coverage that can help you pay some out-of-pocket costs that appear because of your car’s depreciated cost. If the loan you owe for the damages is bigger than the depreciation, this insurance will pay the remainder. With this option, you can fully pay your auto loan.
It is a helpful service that you cannot miss the opportunity to get, so in this article, we will walk you through what is gap insurance, as well as how long it will take for them to pay your claim.
Details about gap insurance
Owning a car is simple, but you have to know what happens with it in the future. Once you decide which car you want to buy or lease, its value will decrease as soon as it leaves the car lot; this is known as depreciation, meaning that when you buy something, it is not going to have (in the future) the same price that you bought it originally.
So, what does this have to do with gap insurance? Let’s see this example: You lease a car for $36,000 originally, you start driving it for 4 months and now its price depreciates to $29,000.
Now, let us say you got into a big car accident, making it not functioning anymore, and your loan is $31,000. Your car insurance company will pay the depreciation value of the car, meaning that there is still $2,000 that you have to pay out of your pocket.
If you have gap insurance, you would not have this problem, as your insurer will pay the remainder of the money.
Cost for this insurance plan
Places like car dealerships, lenders, or even your insurance company can offer you gap insurance at a certain price that depends on where you are located.
However, it can be tricky when buying this plan. From dealerships and lenders you can get a one-time flat rate price between $450 and $700, while if you get it from your insurance company, it can cost from $20 to $40 a year (if it is in one of your car policies).
If you decide to buy standalone gap insurance from your insurer, it can cost between $200 and $300.
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Gap insurance payment time
The time that your insurer will pay for the claim can vary depending on your situation and where you live; it can take from 5 to 45 days for gap insurance to pay.
Keep in mind that they will not pay the remainder as long as you do not finish the payment of the first coverage. Following the former example, you have to pay (with help from your insurer or by yourself) the $29,000 before they pay the gap, which is $2,000.
The reason why is because gap insurance focuses on working along with collision coverage and comprehensive coverage.
Your insurer will let you know that you need to include these in your policy, as the former helps you with collisions, while the latter is for non-collision incidents. In other words, it covers damages from weather, fallen objects, and even if your car is stolen.
So these two coverage plans will help to pay the destroyed car, while gap insurance will cover the remainder if it exceeds the depreciation value of your vehicle.
We recommend that you get this type of insurance as it will help you a lot, even if the difference is not as big as the original price of the car.
Co-founder of AllAboutCareers, one of the top sites for graduates, students and school leavers websites. I studied at the University of Essex. This is my site I talk about finance and help with administrative processes in the USA.