Do You Need GAP Insurance?

Posted on Jan 7th, 03:47 pm, under Are You Covered?

Let's assume your car is totally wrecked in an accident, or stolen. Are you certain that your insurance provider will cover the entire amount? The answer can depend on how you financed your car, and you may need another type of insurance called GAP (guaranteed auto protection) coverage in certain cases.

GAP coverage literally covers the difference, or gap, between what you still owe on your car and its actual value. With a simple one-time payment of a few hundred dollars, you can clear your debt to the insurance company in case your car is destroyed or stolen within the first few years of ownership or during a lease.

So why would you ever need GAP insurance? Because your car's value depreciates drastically during the first few years (simply buying it from the dealer takes off 20 percent). If you were to lose your car to theft or damage, your insurance company would only pay you the actual cash value (ACV) of your car. However, if you took out a loan that was worth more than the car's ACV, you'd immediately find yourself at a disadvantage, to put it mildly.

It is highly recommended that you get GAP insurance if you have rolled over your negative equity from a previous car loan into a new loan; made a down payment of less than 20 percent on your car; financed a car that depreciates especially quickly (such as a luxury vehicle); or financed for 6 years or more.

In any of these above situations, a buyer is considered to be "upside down". This is when you owe more on a car than it is worth. You should generally avoid being upside down in the first place; if it can't be helped, make sure you get GAP coverage.

In the case of a leased vehicle, it really makes sense to get GAP coverage, because even though you haven't purchased a car outright, you are still responsible for the vehicle's cost if it's totalled or stolen. The amount of money you put into the car (in the form of your lease payments) is much lower than its actual value. As a result, the difference between these two amounts can be enormous, if you actually lose the vehicle. GAP coverage is crucial for leasing cars, and so naturally most lease contracts require this form of insurance. 

We'll look into the finer details of GAP insurance next week. Until then, stay safe, and happy motoring! 

What Is Accident Forgiveness?

Posted on Jan 7th, 03:45 pm, under Auto Insurance 101

With the economic recovery still in doubt, money is still tight for many people, especially for those who lost their jobs in the past year. The last thing you want is to get into an auto accident that will cost you thousands of dollars in damages and premium increases. This is why it's as good a time as any to check if you're eligible for accident forgiveness.

Accident forgiveness is a special feature that some auto insurance companies offer, and it's become a key selling point in recent years. Basically, what happens is that your insurance provider "forgives" you for your infraction, in addition to ignoring any adverse effect it may have had on your rates. This concept has been around for several years already, but it has steadily gained prominence in recent times.

Of course, in practice, the whole thing isn't that simple. The conditions for accident forgiveness depend on your particular insurance provider. State laws may also influence the cost and availability of this insurance feature. And lastly, even if your provider offers accident forgiveness to its customers, you don't automatically get it right from the beginning. You need to actually qualify for the benefit first.

Usually, insurance providers that offer accident forgiveness (like Allstate, for example) have a minimum requirement: 5 years of clean, accident-free driving. Several other requirements may be imposed as well, as stated above. 

With accident forgiveness becoming increasingly popular, you'll probably see it offered more often as an add-on to insurance policies. This feature can really save you a lot of money, if you're willing to invest in its benefits. By paying a little extra every month, you can protect your low rates from a potentially big increase, should you get into an accident. 

Some companies include accident forgiveness as an automatic addition to all policies that meet their standard, so you might want to re-read your contract to see if you've got it already. Other companies might even offer it as a free addition at no extra cost. Once again, the benefits vary from firm to firm, so ask your provider for more details. 

The Consequences of Driving Without Auto Insurance

Posted on Jan 7th, 03:44 pm, under Are You Covered?

Besides being illegal, driving without auto insurance in the United States is extremely unsafe and irresponsible. The reason behind the nationwide requirement for auto insurance is simple: driver accountability. All drivers must be financially and legally responsible for their actions while they're on the road.

If you go more than a year without auto coverage, the DMV will blacklist your car immediately. Since all insurance companies submit reports to the DMV that list which customers have not renewed their policies, it’s easy to get found out. Don't let this happen to you; renewing a policy after blacklisting is costly and tedious. You'll need to obtain "no objection" certification from the DMV, and pay a large fee on top of that. (For more information on navigating DMV requirements, check here).

Are there any alternatives to auto insurance? If you've got sufficient finances, you can claim that you have enough to pay for damages, but simple existence of financial backing isn't proof that you're willing to spend it. And paying for damages without auto coverage has driven people into bankruptcy in many cases.

In a few states, however, there are certain allowances for individuals who own a large fleet of vehicles and/or have sufficient finances. In these special cases, the DMV accepts a significant deposit in place of an actual insurance policy. The upside of this scheme is that there is no need to pay a regular premium to insurance firms, and it comes out cheaper in the long run. However, most middle-class citizens will find that the minimum deposit amount is beyond what they can afford.

In almost all other cases, standard DMV requirements and standards will apply. This includes the insurance renewal tracking mentioned above. All family members that live under one roof are considered attached to all the vehicles they own and operate. Teenagers of at least sixteen years of age who get their driving license are also automatically added to the insurance policy.

You should review your insurance policy carefully to make sure it covers exactly what you need, no more, no less. Protecting yourself financially is of the utmost importance in these tough economic times. Never forget to renew your coverage under any circumstance; it's not just about following the law, it's also about your peace of mind.