It's mandatory for all vehicles to have four-wheeler insurance as part of the vehicle purchase process nowadays. This has been done to safeguard drivers and passengers on the road. Besides standard motor insurance, another popular option is Gap Insurance. This insurance covers the loan taken for the vehicle, ensuring protection against unexpected incidents or financial losses.
When gap insurance is worth?
Gap insurance, as the name suggests, addresses the gap between the market value of a vehicle and your outstanding loan amount. This type of insurance becomes relevant when the loan amount surpasses the current market value of the car. Typically, this discrepancy occurs with loans having a tenure of over five years.
During the purchase process of the vehicle, including the acquisition of four-wheeler insurance, the buyer often pays an amount that exceeds the current market value of the car. Every year, vehicles undergo depreciation, causing their value to decline significantly. Eventually, the purchased vehicle will depreciate to a value lower than its current market worth. These unavoidable circumstances highlight the necessity of Gap Insurance.
People often wonder if car gap insurance is worth it. Gap insurance is particularly advantageous for individuals with finite financial resources who may find it challenging to cover the gap between the insured value of their car and the amount owed to a financial institution in the event of vehicle theft or damage. In such dire situations, the buyer could face unexpectedly high out-of-pocket expenses.
Both four-wheeler insurance and gap insurance are essential when the need arises. Market conditions are dynamic, causing potential highs and lows to fluctuate with changing scenarios. Any form of protection is always beneficial, as insurance enables individuals to remain agile and provides them with the peace of mind to operate without unnecessary stress. Understanding the market value and depreciation trends ensures making informed decisions.
When gap insurance is not worth?
Many people often wonder: is car gap insurance worth it? Such thoughts are not unfounded and arise on various occasions.
- Many buyers diligently pay their monthly instalments on time, and basic insurance covers them against accidents. It is understandable for these individuals to have second thoughts about gap insurance, considering their responsible financial management.
- If a down payment of 20% of the car's value has already been made, additional insurance is not mandatory, as this initial investment already mitigates financial risk.
- If the loan term is short, typically less than five years and comprehensive four-wheeler insurance has been obtained, additional insurance coverage may not be necessary, given the manageable repayment period and comprehensive coverage.
- Cars with high brand value often retain their monetary worth in the market, making gap insurance unnecessary for these vehicles that hold their value well over time.
- Before purchasing insurance, individuals should determine the true value of their car by consulting the National Automobile Dealers Association (NADA) guide. If the car's value exceeds the amount of the loan taken, then gap insurance is not necessary, ensuring informed financial decision-making.
Conclusion
When purchasing a car or any four-wheeler, having a four-wheeler insurance policy is essential. This necessity is underscored in cases of theft, accidents, or vehicle damage, where insurance covers the resulting out-of-pocket expenses. Vehicle owners may also consider purchasing Gap Insurance if they have undertaken a significant loan amount to purchase their car. These policies offer vehicle owners peace of mind and assurance, ensuring their car is safeguarded by a reliable insurance company during travels.
Disclaimer: The information provided in this blog is for educational and informational purposes only. It may contain outdated data and information regarding the Insurance industry and products. It is advised to verify the currency and relevance of the data and information before taking any major steps. ICICI Lombard is not liable for any inaccuracies or consequences resulting from the use of this outdated information.