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A vehicle begins to depreciate in value the moment it is driven off the dealer lot. In fact most insurance adjusters assume a 10 percent decrease in value even if the car has been driven less than 1,000 miles. If a vehicle is purchased new and the owner manages to arrange a loan package with little or no down payment, chances are the vehicle will for a time be worth less than the loan balance. Texas drivers who purchase a new car for little or nothing down should consider GAP insurance, which can cover an upside-down loan in case the vehicle is stolen or totaled.

GAP Insurance Offered By Auto DealersGAP insurance stands for Guaranteed Auto Protection and covers the difference between what is owed on a vehicle and what is offered as a settlement if the car is completely destroyed in an accident. Many auto dealers are now authorized to offer GAP insurance and will usually make the coverage available at the time financing is secured.

This coverage can be relatively expensive but is usually just a one-time fee. The cost may be as much as 3-4 percent of the retail price on the vehicle. Dealers can either accept the payment in full or combine it with the loan package. Subsequent payments are not needed because the insurance is in force only so long as the car's value is less than the loan balance.

GAP Insurance From A Texas Insurance Agency

Most insurance companies do not advertise GAP insurance but many are licensed to provide it. The cost is similar to what a dealership charges and can be added to the price of a full comprehensive and collision insurance policy. Drivers in Texas will be required to have full collision insurance before a GAP policy can be added. This is because the GAP insurance only covers the difference between what collision or comprehensive insurance will pay and the loan balance on the car.

If a car is worth $20,000 and the loan balance is $22,000, drivers can take out a GAP policy for the difference plus deductible amount. If the collision insurance policy carries a $500 deductible and the car is totaled in an accident caused by the owner, collision insurance will pay for $19,500. The GAP insurance will pay the difference, leaving the owner of the vehicle free from financial obligation to the lien holder.

When A Vehicle Is Stolen

Drivers in Texas should make sure their comprehensive insurance package covers a stolen vehicle that is never recovered. A GAP insurance addition to the policy would work the same way as if the vehicle was totally destroyed in an accident. In some cases GAP insurance purchased along with collision and comprehensive coverage will include the deductible amount. This means if the car is totaled or stolen, drivers will not have to pay the deductible in order for the insurance company to process the claim. This does not apply if the car can be repaired.

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Q: Decide If Texas Vehicle GAP Insurance Is Needed?
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