Insurance World

Why is gap insurance considered as a financial safety belt? Simply put, it keeps you from being financially ruined when disaster hits your car. For example you are in this situation, you bought a late-model car three months ago using a car loan with a regular car insurance. The car costs $30,000 and you have already made three payments of $900 each month. Then, disaster strikes. An electric post falls and slams down on your car. The car was flattened to half its height.

Immediately, you reported it to the auto insurance company, which they in turn play with numbers, mileage, depreciation, market values, and other related stuff. After a couple of days, the adjustor informs you that the worth of your car at the time of the accident is $25,000. This is the amount that the auto insurance company will provide you. But the finance company that gave you the loan will still consider the car to be worth its original price. They also play with numbers, interest rates, taxes and license fees. Then they come up with the amount of $38,000. This is the amount that you need to pay them. If the auto insurance company releases the $25,000, where will you get the remaining $7,000? Your car is already a wreck but you still owe the finance company.

You need not face such a dilemma if you have a gap insurance. With the gap insurance, you can ignore the difference between the amount covered by the regular car insurance and the amount you owed the car loan company. This difference is called a “gap” and the gap insurance bridges it so that you need not rack your head for additional financial resources.

A car lease contract must also have a gap insurance. It is a feature that prevents you from draining all your finances. Some dealers who lease cars don’t offer a gap insurance. This is okay as long as they include a “gap waiver” in their lease contract. This waiver declares that you are no longer responsible for gap charges that may occur when your leased car is wrecked.

When you get a gap insurance, determine how much is offered in the gap policy. You should also know how much will be added to your monthly bill. A gap insurance, for it to be recognized, must be accompanied with comprehensive insurance policies that cover collision.

Sometimes, a gap insurance may no longer be needed if the terms in your regular auto insurance policy indicated that the company will pay off the full amount you owed from the car loan lender.

Auto insurance is often a sticky subject. Everyone feels like they’re paying too much to insure their car, and wants to know how to get their premiums down. It’s an industry that really lacks an effective way to make price comparisons, leading many people to switch every few years the way they do with credit cards or phone providers.

When you understand the factors that go into deciding the price you pay for auto insurance, however, you should find it much easier to read the market and use it to your advantage. This article should give you a basic grounding, but whole books have been written on the subject – it’s up to you how much you want to learn.

The most basic thing you need to understand is that insurance companies don’t decide premiums based on how much they like you, or how much they think you can afford. Insurance is based on one thing, and one thing alone: risk. Every time the insurance company has to pay out for an accident, they keep a record of the amount, and every other factor they can find – the make, age and model of the car, the age and gender of the driver, where they live, how long they have had a license, and so on. There are hundreds of factors.

From this, the insurance companies can build up what is called a ‘risk profile’. This allows them to work out the risk that they will have to pay out to any given person, and how much they would be likely to have to pay, based entirely on past experience. This is why a newly-qualified male driver in his twenties driving a sporty car has to pay so much to get insured – the statistics show that this group is by far the most likely to have an accident.

Once you understand this system, you can use it to your advantage. Obviously you can’t change who you are, but you can change your car. The make, model and age of your car are three quite important factors in your risk profile, and they’re all open to you to change. It is not difficult to use online insurance quotation tools to find out which cars are pricey in insurance terms, and which ones are cheaper, and use this to help you make buying decisions.