What is Gap Insurance? Gap Cover explained
What is GAP Insurance?
Guaranteed Asset Protection (GAP) Insurance, also known as Motor Equity Insurance, is insurance that protects against any shortfall that may occur if your vehicle is stolen or written off. The Comprehensive Motor Vehicle Insurance payment doesn’t allow cover the entire loan balance outstanding on your finance agreement, so this helps protect you financially. Ultimately, this could save you, a car owner, from thousands of dollars in payment. However before taking out any insurance policy its important you familiarise yourself with the benefits by reading the policy wording and regard to the cost and make a decision as to whether purchasing such a policy is right for you.
GAP Cover Australia
If your vehicle is written off and is still under finance, the financier will require you to pay out the remainder of the contract. While your insurance company will compensate you for the loss of the vehicle, they sometimes pay you the current market value of the car, which oftentimes is less than what is owed on the loan. A shortfall occurs when you include purchase-related expenses such as dealer delivery, registration, stamp duty or comprehensive insurance within your loan. This adds to the loan and above the vehicle’s value leading to this difference in money. It can also occur when the vehicle’s value falls faster than the loan balance itself due to the vehicle depreciating and/or accrued interest costs.
It’s important to understand that GAP Insurance and Purchase Price Insurance are different insurances. PPI covers a potential shortfall between the insurance payout and the price you initially paid for the vehicle. While GAP Insurance covers a potentials shortfall between the insurance payout and the amount of the car loan.
What does Gap Insurance do?
This helps to reduce or even eliminate any financial risk when an insurance payout is less than the outstanding balance on a loan. These gap cover plans can cover up to $40,000. Such vehicle gap cover policies in Australia usually give you the ability to cover additional funds to purchase a replacement. It can protect your credit rating and adds the benefit of a one-off payment of up to $10,000 for any inconvenience suffered with a shortfall. Lastly, the gap insurance premium covers you for the entire term of the loan and can be included directly in the amount financed too (as well as stamp duty, dealer delivery, registration and comprehensive insurance).
Do I need gap insurance
GAP insurance is best for those who place a high value on peace of mind and financial protection when purchasing a motor vehicle. Usually to apply for the policy you need to be taking out a loan and buying a new or used vehicle. The decision to take a gap insurance policy it depends more on the amount of loan versus the value and depreciation of the vehicle as well as the benefits of the offer and your tolerance and perception of risk. Be careful to shop around though so you are not overpaying for this cover.
Types of GAP Insurance Coverage
There are different options available, each of which will protect you from different levels of shortfall. There is even coverage available to help you if you’ve been inconvenienced by the loss of the vehicle that offers an additional cash payment. Coverage ranges from $5,000-$40,000. The proper insurance policy will depend on whether or not you’re bundling many things into your payment and the cost of the vehicle itself. Also, consider the rate of depreciation for the particular vehicle that is being purchased too to ensure you have the proper amount of coverage.
For example, a vehicle is lost due to a fire. $30,000 is still owed on the loan yet the comprehensive motor vehicle insurance is paying $20,000 for the current market value. A GAP insurance policy will cover the $10,000 shortfall, but up to $6,000 in cash to compensate for any inconvenience associated with the shortfall.
A loan specialist can help you determine what the proper policy is for your circumstance. By taking out this type of coverage, you are protecting yourself financially from having to pay a large bill in case of fire, damage or theft. GAP Insurance is a security blanket for motor vehicle owners who want peace of mind during the duration of a motor vehicle loan. You can pay for it in one lump sum (often with a nice discount) or roll it into your motor vehicle loan.
GAP Insurance is one of the most important policies you should take out. Vehicle values depreciate at a quick rate, which means that the value of your car goes much lower oftentimes than the actual remaining balance on your car loan. This coverage will cover the difference of your comprehensive insurance payout and the balance of your car loan. Leave without fear of being out thousands of dollars in case of a shortfall occurring that you can’t control! GAP Insurance is a must-have for all Australian motor vehicle owners.
GAP insurance claims – how to make a claim on gap insurance
To make a claim on your gap insurance you will often need to be proactive and contact the insurer yourself in the event of an insurable claim. Make sure you keep your paperwork handy and understand what the policy does and does not cover.