Some say you don’t actually need gap assurance if you buy a second hand car
It is simple arithmetic that can help you to decide whether you need GAP insurance cover or not and it has nothing to do whether you buy a new car or a used one. The cost that you have to bear for purchasing the car, the rate of depreciation and the mode of financing are basic factors that have to be considered to decide about the necessity of buying GAP insurance. The condition of the car, new or old does not matter at all. Having a look at the financial equations involved in buying a car will help to understand things better.
Its big money
When you buy a car, the total pay-out includes the cost of the car plus taxes and duties together with the cost of buying a comprehensive car insurance policy and this is quite a significant sum. In case you are ready to bear the total liability and you have the money then you surely do not need GAP insurance. But if you have to borrow money for buying the car it means that besides acquiring the car you are also acquiring a big liability of paying back the loan. And what happens when the car is stolen or gets badly damaged in an accident? This is the time when GAP insurance can help you.
Prepare for the worse
When the car is badly damaged or stolen, the insurer will consider the event as a total loss- taking into account that the cost of repairing will be much higher than the value of the car. The book value of the car at the time of the incident will be paid to you by the insurer. Now, you have outstanding loan amount that has to be paid back and you also need to buy another car. The total liability would be just too much for you because the book value of the car will be much low due to depreciation and there will be a big gap between the amount that you recover and the amount that has to be paid back to the lender. If you have Gap insurance also known as Guaranteed Asset Protection, it will take complete care of the liability of loan that you may have thus saving you from any extra spending.
Figure it out
By now, one thing must have become very clear — the financial figures of car buying determine the need of GAP insurance. In the event of total loss, the book value of the car will definitely be very low because of high rate of depreciation for cars while the total financial liability of loan will be much higher, thereby creating a big gap that becomes your liability. GAP insurance provides complete coverage for this gap regardless of the condition of the car — new or used.
Even if you buy a used car, work out the numbers that have been discussed above to understand your liability if the car is wrecked or stolen. How much of liability can be borne by you would determine the applicability of GAP insurance.