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When it comes to car insurance, you can never really be fully protected from all incidences that may befall you or your vehicle. Regular car insurance policies are lacking in many aspects, and factors such as depreciation may be problematic.
That may not be a problem if you fully own a vehicle, but if it’s leased or refinanced, you might want to get some extra coverage.
One of the most common types of supplemental car insurance policies is gap insurance. If you lease a vehicle or purchase one with an auto loan, you will be required to add gap coverage to your regular car insurance policy.
You may be entitled to a partial refund of the amount you paid in gap insurance premiums when your loan is paid off.
Auto insurance can be expensive, including supplemental coverages such as gap coverage. One of the most effective ways of bringing auto insurance rates down to affordable levels is comparison shopping.
Before you settle for an auto insurance provider, compare quotes from numerous car insurance companies to get the best rates. Enter your zip code above to compare today!
The Depreciation Factor
When doing calculations on the cost of ownership before purchasing a new car, very few people factor in the rate of depreciation of a new car — despite its being one of the biggest costs of owning a new motor.
Newer cars depreciate faster than older cars – a new vehicle will depreciate by 20 percent in its first year, and the rate of depreciation decreases each year successively.
For instance, if you bought a car worth $20,000, its market value will be around $16,200 after just one year.
Usually, the car insurance company settles the car’s actual cash value (ACV) if a car is totaled by a covered loss that occurs after any of the following:
If your car is refinanced or leased, your bank or auto dealer will require you to purchase gap insurance to protect themselves from losses in the case of such an occurrence.
You can choose to purchase the coverage with the bank or auto dealer or a traditional auto insurance company.
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Guaranteed Auto Protection (Gap Insurance)
Also referred to as lease pay off coverage, guaranteed auto protection (gap insurance) provides valuable financial protection during the early years of a leased or refinanced vehicle.
Gap insurance covers the difference between the car’s actual cash value and the amount of outstanding loan in the case of a loss.
Gap insurance may also cover your auto insurance deductible, but that will depend on the terms of the policy.
If your vehicle is refinanced or leased, you will be required to carry collision and comprehensive coverage. Gap insurance supplements collision and comprehensive coverage to protect the bank or the auto dealership from any financial loss.
If your car is stolen or totaled in an accident, these coverages will only reimburse an amount equivalent to the vehicle’s current market value which may be lower than the amount owed to the bank due to depreciation.
What happens the loan is paid off?
When you pay off an auto loan, you may drop gap coverage if you wish to. The reason banks require their clients to purchase gap insurance coverage is to avoid loss in the event of the occurrence of a covered incident.
Therefore, it makes sense to refund the amount paid in gap insurance premiums when the car loan is paid off.
If you fully own the car, the bank doesn’t stand to make any losses, and you don’t need the gap coverage anymore.
Always make sure that you have gap coverage if your car refinanced or leased. Gap insurance is supplemental, and you don’t have to get it from your original auto insurance provider.
When shopping for gap insurance, compare quotes from several providers before you make any financial commitments. Comparison shopping is the best way of making sure that you get the best rates.
It’s possible to get a refund on your gap insurance premiums; most people don’t know that. It’s easy to get carried away by the sense of freedom you get when you finally pay off your loan.
If didn’t know that you can get a refund on your gap insurance premiums, you’ll simply move on with your life, happy with your newly attained financial freedom since there are no more monthly payments!
However, when you understand that you may be entitled to a premium refund on your gap insurance, you’ll arm yourself with the payment notice and claim your share. Usually, the gap coverage premium is paid in advance.
For instance, if your vehicle is refinanced for four years, but you end up paying off the loan in two, you are entitled to two years’ worth of gap insurance premiums. Any unearned premium should be refunded to the insured when the loan is paid off.
Other Ways to Get a Gap Refund
There are other instances, besides paying off your auto loan early, where you are entitled to a refund of your gap premium. A good example such a situation is when you sell or trade your car.
Below are a few tips to help you get a refund of your gap insurance premium in case you sell or trade your refinanced vehicle:
- Cancel your gap insurance coverage. When you sell or trade a refinanced vehicle, cancel it’s gap insurance coverage as soon as possible.
- Obtain the documents that show you have paid off your loan. Once you sell or trade your car, you will get the money to pay off your auto loan and what you owe in gap insurance payment.
- Obtain the car’s official odometer reading from the car dealership. When you go to sell or trade your vehicle at the dealership, ask for an odometer disclosure statement. This document states the official mileage of your car. The mileage is required when asking for a gap insurance refund.
What next after the cancellation?
Once you have obtained a copy of your cancellation forms to the gap insurance provider, a copy of the payoff letter from your auto loan financier, and the odometer disclosure statement, the policy will be canceled.
In a few weeks’ time, you should be receiving a check for a part of the money you spent on gap insurance.
What you get back is known as unearned premium. It is money you have paid for gap insurance coverage, but haven’t used it. It’s your money!
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