GAP insurance
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Guaranteed Auto Protection (GAP) insurance is also known as GAPS and was established in North American financial industry. GAP insurance is the difference between the actual cash value of a vehicle and the balance still owed on the financing (car loan, lease, etc.).[1] GAP coverage is mainly used on new and used small vehicles (cars and trucks) and heavy trucks. Some financing companies and lease contracts require it.[2]
GAP insurance covers the amount on a loan that is the difference between the asset value and the amount covered by another insurance policy.[1] Some GAP policies also cover the deductible.[3] This coverage is marketed for low down payment loans, high interest rate loans and loans with 60 month or longer terms. GAP insurance is typically offered by a finance company at time of purchase. Most auto insurance companies offer this coverage to consumers.[4] GAP insurance is usually paid upfront and, for that reason, one is eligible for a refund if he/she sells or refinances their vehicle.[5]
There are two ways of getting GAP coverage. The first type is an insurance policy sold by a broker. The second type is a waiver agreement sold by a Finance & Insurance Manager. The first is regulated by the insurance industry, the second is unregulated.[citation needed] In either case coverage is usually the same and sold as a soft product through the car dealership. Coverage is usually financed along with the lease/loan. Claims are subject to a total loss. The total loss is usually determined by the primary insurance company’s third-party appraiser.[citation needed]
Exclusions to GAP insurance vary by country or state. Some exclusions include a maximum loss limit of $50,000 while others require a loan term of less than 84 months.[citation needed] GAP is an optional purchase; however, many states in the US require that a car dealership offer GAP at the point of purchase. Other states require insurers to offer GAP if a client requests it.[6] States such as Louisiana require that the purchaser sign a disclosure document as proof.[7] Although GAP is optional, some finance companies require GAP as a condition to obtaining a loan.[2] The Truth in Lending Act excludes GAP premiums from financial charges if GAP was not required by the creditor, the premiums were disclosed in writing, and the consumer provides a written request for the insurance.[citation needed]
UK Gap Insurance Update
In September 2015, the FCA changed the way that Gap Insurance premiums are sold by car dealers in the UK.[8]
Claims ratios for GAP insurance (the amount paid out in comparison to premiums paid) were just 10% between 2008 and 2012, meaning that just £10.00 was paid out for every £100.00 paid in premiums.[9] The poor value for money being given to consumers prompted the FCA to require the following:
- Ensure dealers make consumers aware that other suppliers exist.
- Delay the transaction by 4 business days.
See also
References
- ^ a b "Gap Insurance". Retrieved 19 June 2013.
- ^ a b Reed, Philli[. "Gap Insurance: How It Impacts Your Car Loan or Lease". Retrieved 19 June 2013.
- ^ Sage, Bobbie. "Gap Car Insurance Coverages". Retrieved 19 June 2013.
- ^ Steinisch, Monica. "Gap Insurance for Your Car: Do You Need It?". Retrieved 19 June 2013.
- ^ Caucutt, Joshua. "What Is Gap Insurance Coverage for Cars – Is It Worth It?". Retrieved 19 June 2013.
- ^ "RCW 48.22.060". Retrieved 19 June 2013.
- ^ "Louisiana Motor Vehicle Commission GAP Disclosure Form" (PDF). Retrieved 2012-03-28.
- ^ "FCA proposals to tackle issues in GAP insurance market". FCA. 2014-12-12. Retrieved 2017-07-20.
- ^ "FCA targets GAP Insurance". IMI Accreditation. 2014-03-24. Retrieved 2017-07-20.