Did you know that when you drive your new car off the lot, the value of your vehicle immediately goes down, sometimes as much as 20%-30%.
Let's say that you paid $20,000 for you new vehicle and you have an accident a month later, and your vehicle is totaled in the accident. Maybe you made at the most one payment and if you did not put very much money down, your loan amount is still close to the $20,000 purchase price. Especially considering that you would have financed the tax and other fees.
Unfortunately, even with full coverage on you car insurance, which includes comprehensive and collision, you will only receive the fair market value of your vehicle which could be as much as 20%-30% ($4,000 - $6,000.00) lower than the purchase price.
That means you may be stuck paying that 20%-30% ($4,000 - $6,000.00). On a $20,000 car. Just a 20% depreciation on that vehicle would be $4,000! That amount could be more if you financed your taxes and license into your loan.
If you have purchased Gap insurance with your current insurer, it would insure you for the difference between the loan amount on the car and the actual fair market value. But, not all insurance companies offer Gap insurance.
Gap insurance can also be purchased seperatly from other insurance companies than the one insuring your vehicle.
The most frequently asked questions about Gap insurace are as follows:
What is Gap insurance? Gap insurance will insure a vehicle for the difference between what is owed on it and what an insurance company determines to be the fair market value of the vehicle. A very cost effective way to financially protect yourself from a total loss when buying a new car is to purchase Gap insurance.
Is Gap insurance required on all new vehicles? No.
Can I buy Gap insurance for my older vehicle? Gap Insurance is available on new, used, and refinanced cars, trucks and SUV's purchased or refinanced within the past 12 months.
What does Gap insurance cover? The difference between the actual cash value of your car and the balance on your car loan is called the Gap. If your car is stolen or declared totaled, your auto insurance company will pay you the actual cash value of the car. Without Gap Insurance your lender will hold you responsible for paying the Gap (difference). The net effect is that you will have to come up with hundreds or thousands of dollars to pay off that debt.
Does my leased car automatically come with Gap insurance? Frequently, Gap insurance is built into the lease rate but don't assume it is since every lease is different.
Can I buy Gap insurance from the dealership? Yes, most dealerships offer Gap insurance but usually at a higher cost. Check your current policy to see if you already have Gap insurance before shopping for a new Gap policy. Before buying a new car you should call your current insurance company to see if they offer it.
