Gap insurance is also referred to as GAP protection and/or Totaled insurance. It stands for ‘Guaranteed Auto Protection‘. It covers the difference between what you owe on your car and how much the car is worth.

Most drivers feel that a common auto insurance policy provides enough coverage for the cost of repairs or replacement, if their vehicles are damaged or stolen. However, if you total your car and the car’s actual cash value is lower than the amount you owe on your loan balance or lease, that difference, or “gap,” is not covered by insurance. Your insurance company won’t pay out more than the car is worth (before it was damaged) so you will be responsible for paying that amount.

Gap insurance is one of those extra charges that seem like a squander of personal capital until you probably need it.

Let’s set a type of example why Gap Insurance would help you immensely. Let’s say your recent car cost around $38,000 , your insurer may possibly pay around $32,000 for a total loss during it’s initial year. That’s a $6,000 loss. Again, this is all betting on the certain amount of your down payment. You would still be responsible to your lender for the balance of the loan. Imagine after getting your car completely totaled or even stolen, you still are held responsible to pay off a car you don’t even drive anymore? It’s not something easily to take in.

Who should probably get Gap Insurance?

It’s safe to say anyone who has an auto loan or lease and hasn’t put much money down should consider getting GAP insurance.

Here’s a few fun facts on whom should get it:

• People who are financing for 60 months plus.
• Put a down payment of less than 20 percent.
• Negative equity from a past car loan into a new car loan.
• You plan to drive more than 15,000 miles yearly.

Gap Insurance typically doesn’t cover the following:

• Vehicle payments due to financial hardship, job loss, disability or death
• Car repairs
• The value of your car or balance of a loan if your car is repossessed
• A rental car while your car is in the shop
• Tended warranties you add to your car loan
• Rental car while your vehicle is in the car

Average Cost

A quick example of a monthly cost for GAP is AP insurance, which would cost around $20 to $30. The cost could down along with the cost of collision and comprehensive as the vehicle ages.

Alternatively, you can purchase gap insurance at your dealership as well. It’s a little likely to cost you significantly more. Many dealerships sell gap insurance coverage for an average of $500 to $1,000, and they often require a large payment upfront.

There’s many variables to the specific cost to any insurance. You’ll need to obviously get in contact with an insurance agent on follow up questions. GAP insurance isn’t necessarily accredited as it should but should be taken into high consideration for people who have a loan or lease.

An insurance deductible is the amount of money you would pay in the event of an accident (assuming liability).

For example, a standard insurance policy may be $100 a month with a $1000 deductible. Meaning in the event of an accident, you would be responsible for $1000 and the rest is covered by your insurance policy. This is to promote safe driving habits and spread the full cost of an accident across several parties (insurance company and insured motorist).

These two figures (the monthly premium and the deductible) often move in opposite directions.

The figure above demonstrates that if you choose a lower monthly payment (premium) your deductible goes up. The opposite would be a higher monthly premium, which would result in a lower deductible.

There’s many variables to consider when deciding between a high or low deductible. It’s a logical, financial and personal decision that determines what fits your needs best. Insurance policies are based on risk with each party in the agreement assuming some kind of risk. Insurance companies offer several policies to fit peoples needs with some policies requiring higher monthly dues and others higher payments in the event an insurance claim is submitted.

The policy that best fits your needs will depend on several factors including current financial obligations and even future cash flows.

When one enters into an insurance contract, it is important to determine whether you will have sufficient funds to cover the event of an accident (medical bills, medical co-payments, deductibles, rental car fees, etc).

Let’s break down the two most popular types of motor vehicle insurance. High and Low Deductible Insurance.

Choosing a Higher Insurance Deductible

Most people seek the advantage of a higher deductible because the monthly rate is significantly lower. This depends on the insurance company. The risk of paying a higher deductible may be suitable for someone who:

• Avoids driving often
• Avoids driving long distances
• Avoids driving in large urban areas
• Avoids driving during peak hours
• Has cash reserves

In 2012 there were 5,419,000 police-reported motor vehicle traffic crashes. Most of which occurred in large urban areas and metropolitan areas. This increases the likelihood of being in a car accident. That is why rural insurance policies are significantly less than urban insurance policies. Per the Association for Safe International Road Travel, Road Crashes in America cost $230.6 Billion per year.

A question to ask yourself is is ‘Will the money I save in auto insurance premiums condone taking on higher risk and a higher auto insurance deductible?’

This a great policy for those who wish to be rewarded for safe driving habits and are willing to risk higher out of pocket expenses in the event of an accident.

Example policy is $100 monthly premium and a $2500 insurance deductible.

Choosing a Lower Insurance Deductible

Many people choose to increase their risk and opt for a higher monthly insurance payment but a lower deductible. This ultimately reduces your out of pocket expenses in the event of an accident.

This is great for younger drivers on the road who could be more reckless in their newly developed driving habits or for repeat road offenders. Aggressive drivers should opt for a lower deductible since the odds of them being in a collision is greater than those who drive conservatively.

Example policy is $200 monthly premiums and a $1500 deductible.

How to Choose Between a Lower Deductible or Higher Deductible Insurance Plan

Factors that should be taken in consideration at the end of the day should be plain and simple, and that’s your driving record and your current finances. If you have a great driving record and you have more than 10 years, you can probably lower your collision deductible without much difference in your monthly rate.The typical car insurance deductible increment choices are as follows: $250, $500, $1,000, and $1,500. If you’ve never been in an accident or even received a parking ticket, it’s within reason to deviate towards the higher deductible. If you have a reckless driving accident history then you obviously need to take the smarter route and get the lower deductible route. Again, adjusting your finances on a ‘maybe’ situation can be the major deciding aspect.

An additional food for thought factor in your car insurance rates is the coverage you choose to carry on your policy. You will pay more for higher coverage limits and for carrying optional coverage’s; however, these optional coverage may offer much-needed protection in case of an accident or other vehicle-related incident. Liability insurance is typically a legal requirement; however, other coverage’s such as collision and comprehensive are generally optional.

Contact our Miami Auto Insurance Specialist today or visit the Insurance Industry Blog for more information.