Guaranteed Asset Protection Insurance (GAP) has been established in the North American insurance industry. GAP insurance insures the borrower when the vehicle is lost or destroyed by paying the difference between the current market value of the vehicle and the current outstanding balance on the loan. When a policyholder purchases an asset and is unable to repay the loan, they can use the asset as collateral. In order to do so, the insured must provide a surety bond, or insurance, that will pay the difference in value between what the vehicle is worth now and what it would be worth if the loan were repaid in full.
GAP policies are similar to Personal Asset Protection Insurance policies but there are many differences. While a Personal Asset Protection Policy is not required, it allows the insured to have the legal right to recover their losses if they cannot pay off the loan, Gap policies must be purchased and are designed to protect the insured against creditors and other third parties.
GAP coverage typically comes with two different types of policies, Collateral Replacement and Collision Replacement. Collateral replacement is designed to protect the policyholder in case the loan is returned and the lender doesn't collect any funds owed on the loan. The insured pays the difference in market value between what the vehicle was valued at the time of the loan, and what it would be worth at the time of the return of the loan.
Collision replacement is designed to cover the vehicle in case it is damaged due to a collision with another vehicle or person. The insured pays the difference in market value between what the vehicle was worth at the time of the loss, and what it would be worth after repairs. If the vehicle isn't repaired, it is considered to be at-risk.
The amount of coverage provided by the gap depends on the type of coverage being purchased and is determined by the size of the loan. The smaller the amount of equity on a home, the smaller the amount of coverage that is required to protect the insured from a loss. In contrast, larger loans require more extensive coverage. This is especially true when you consider the possibility of the mortgaged property being foreclosed on and the home being resold.
It is important to remember that your coverage for Gap insurance is determined by your state, which means that the amount you purchase will be determined by the laws in your state. and what the lenders require. In some states the minimum amount required may also include the cost of repairs and that will be required to restore the vehicle to its pre-loss condition.
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