Car gap insurance policies are useful for motorists. These insurance plans are handy considering that car owners possessing negative equity on their vehicle may find themselves in a rather unfortunate situation. It is because, in the first few years of ownership, private vehicles generally depreciate the quickest. Such time is also not the best moment to get a car written off, and road accidents are unavoidable as well. Insurance companies can offer car owners less than what they owe on an auto loan. Hence, a car gap insurance policy may appear like an attractive choice for some car owners. But in three to seven years, this kind of insurance policy for private vehicles could become an expensive product. They can add to the financial worries of a car owner. Thus, there are alternatives to this kind of insurance.
Explaining the Concept of ‘Motor Equity Insurance’
“Car gap insurance” is the other name of motor equity insurance. For new car owners, this insurance product’s name may sound complex. However, it is not that complicated to comprehend what motor equity insurance is. This kind of ‘guaranteed asset protection’ is useful when a motorist is in negative equity on his car loan. Also, it is ideal if he owes more than what his vehicle is worth. In Australia, this kind of shortfall insurance is a readily available product.
In terms of coverage, the motor equity insurance covers the space or “gap” in what a motorist owes on an auto loan, versus the amount his insurance company remunerates him for his car during a write-off moment. One example is, if a car owner still has $40,000 unpaid on his car loan, it is possible for any insurance provider on any vehicle to pay out $30,000. The motor equity insurance would guarantee that outlying amount of $10,000 instead of the motorist wearing the loss himself. However, the insurance company would undoubtedly deliver the coverage in exchange for a fee.
Motor equity insurance could be an attractive prospect. It is because an auto insurance provider’s determined value typically factors in depreciation. Private vehicles still lose grip of a quarter of their price in as fast as three years, even in plenty of optimal case situations. Besides, luxury vehicles have the potential to lose over half of their value. Owners of expensive cars could be looking at spending $50,000 or more out of pocket, depending on the number of years into the loan they write off their vehicle.
Motorists may find that the market for motor equity insurance is relatively toned down compared to the broader insurance marketplace. Nevertheless, it is common for car owners’ insurer, financier, or dealer to offer this kind of car insurance when they take out a policy or an auto loan. Some of the car gap insurance providers in Australia are the following:
B) AAA Finance and Insurance
C) Stratton Finance
D) Aussie Car Loans
If selecting Toyota as the motor equity insurance provider, car owners must keep in mind that they must have bought a new vehicle from the company. Plenty of financiers and finance brokers themselves may offer the insurance product as well. They can make it available as an optional addition when a customer takes out one of their loan offerings. In this case, the car owner will have to perform his computations and determine if the insurance policy is already a part of the loan. This situation translates to the fact that the motorist could be settling interest in the insurance policy, too.
5 Alternative Measures of Car Owners to Motor Equity Insurance
Car gap insurance policies can be beneficial products, especially for owners of luxury vehicles. However, for other consumers, it could hit their wallet tremendously and bring impending financial concerns. Therefore, motorists can benefit if they consider one or a combination of the following strategies. Although these alternative tactics may not cover the policyholders completely, they eliminate the necessity for the pricey car gap insurance. Also, the loan-associated features could leave car owners better off financially as they get on top of their financial situations.
1. Avail of a “new for old” auto insurance policy.
Motorists do not have to worry about losing their car in the event of a complete loss. It is because of the benefit that they can get by taking out a ‘new for old’ car insurance policy. Although this product may leave them paying more in one year, they can feel assured that they will still have their treasured car with them.
2. Select a shorter car loan term.
Car owners will benefit if they shorten the loan term of their auto loan, compared to availing of car gap insurance. They can diminish the duration of the borrowed funding to as brief as they can manage. This tactic allows them to decrease the amount of interest settled. Plus, car owners can possess more equity, especially towards the back half of their auto loan term.
3. Ensure that one’s deposit amount offers a sound financial cushion.
If car owners settle at least a 20-per cent deposit, it could be a favourable amount for them. It is because such sum can give them a constructive financial buffer if they happen to get into a car accident while their vehicle is under finance. Furthermore, having a healthy deposit decreases the motorist’s interest payable on the auto loan. This effective measure reduces the possibility of falling into negative equity as well.
4. Instead of insuring for market value, choose the agreed amount.
Car owners can avoid a gap in their car loan if they insure for an agreed value, rather than of market value. This choice may cost them more on their annual insurance policy, but it is still better compared to getting the expensive car gap insurance.
5. If the financier allows it, settle an additional amount into one’s car loan.
Motorists whose financier permits paying extra into one’s auto loan can settle such additional amount when they can budget it. They will benefit by having the interest payable and loan size reduced. Also, they get to diminish the likelihood of having negative equity.
A motor equity or car gap insurance can be a useful insurance policy. However, for consumers who are mindful of their expenses and do not belong to the wealthy segment of the society, they may find this insurance policy unnecessary and impractical. Therefore, employing the five strategies detailed above facilitates a car owner not to need the high-priced insurance policy. After all, car gap insurance tends to get more expensive in a matter of less than ten years. Also, it is significant for a motorist to stay on top of his auto loan if he finds his vehicle losing value on the secondhand market fast. This moment could be a positive sign that it is time for him to settle an additional amount into his car loan to revamp the equity. During prosperous periods, a car owner who gets on top of his auto loan could save himself from worries later on if he writes off his vehicle.