If you've ever gone online in search for auto insurance quotes, you've probably noticed that the applications ask a lot of questions. Here is the answer to why they get so personal, and what types of information insurance companies know about you.
If you've ever heard of the term GAP insurance, you might be wondering what it is and whether or not you should purchase it. GAP insurance is a great thing to have when it is needed, but for many people it does not make financial sense.
Auto insurance specialists help many people each year get better car insurance. Before you search for auto insurance quotes yourself, find out if an auto insurance specialist could benefit you.
When it comes to auto insurance quotes, many people stick with the same company year after year. Although doing so can have some benefits, there also often comes a time when it makes more sense to look for a new insurance company.
When shopping for auto insurance quotes, most people have a general understanding of the terms – collision, comprehensive, uninsured motorists – these terms basically cover what they imply.
However, most people are not so sure about what GAP insurance covers. Even if you have an extensive auto insurance policy, without GAP insurance – which stands for guaranteed auto protection – you might not be fully protected if your vehicle is totaled or stolen.
Most of the time, when you buy a car, you will end up owing more than it is worth. This is because cars depreciate very quickly when they are new. Unless you put down a heft down payment, you will likely be in this predicament. This means that when you get into a car accident and your vehicle is totaled, or if it stolen, your insurance company will pay you less than what you owe (because they only pay what the car is worth, or the current market value), and you will be responsible for the difference. If you have GAP insurance, it will cover this gap in insurance. For example, say you have a loan on a car for $20,000, but the market value of your car is $17,000. If you total your vehicle, your insurance company will pay you $17,000. You will still owe the bank (your loan) $3,000. You could pay this $3,000 out of pocket (plus you will likely be purchasing a new car), or you could purchase GAP insurance and be protected for the full value of your car.
Although GAP insurance is definitely nice to have when you need it, it is not always worth the expense. If you put down a large down payment or buy an older car, GAP insurance might not be necessary. GAP insurance only makes good financial sense if you currently owe more on your car than the car is worth. Typically people who put down 20% or more on their vehicle can do without GAP insurance. For many GAP insurance is optional, but sometimes your finance company will make it a requirement for you to have a loan.
If you intend on financing your vehicle for longer than 5 years, you will also likely want to consider GAP insurance. The longer your vehicle is financed, the more difficult it becomes to build equity. If you have a vehicle that depreciates quickly, or if you drive a lot (more than 15,000 miles per year), GAP insurance might be a good idea as well.
If the difference between how much you owe and much your car is worth is small, or something you could easily cover out of pocket, you might decide to skip GAP insurance. You might never get into an accident, so paying monthly payments for something you could easily pay out of pocket for might cost you more money in the long run.
Finally, if you own your car outright – no financing – GAP insurance will not benefit you.
If interested, you can shop for GAP insurance on your own using auto insurance quotes. However, when you purchase your vehicle, the dealership will also likely attempt to sell it to you.