What is Gap Insurance? If you've just purchased a new car, you might need gap insurance.
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Gap Insurance is one of the many thing consumers need to consider if they are planning on buying or leasing a new car. Gap Insurance covers the difference between the amount that is still owed on a vehicle and the amount that an insurance company will pay on a total loss of the vehicle. If this sounds confusing, keep reading.
An Example of Gap Insurance
Say that John purchased a new Ford Explorer for around $28,000 two months ago. He put 5% down when he purchased it, so he still owes almost $26,500 on his loan. If John's truck is totaled, the used car value of the SUV (according to Kelly Blue Book) is $21,500. That means that John's insurance will only pay him $21,500 for the truck, even though he still owes the bank or dealership $5,000 more than that. His new SUV is wrecked, and he still has to make payments on it!
Don't Make a Bad Situation Worse
Suffering a total loss on a brand new vehicle, though unlikely, is an unsettling thought. With a small expenditure on gap insurance, you're guaranteed to be completely covered even if you owe more than your car is actually worth.
Make Sure You Don't Already Have Gap Insurance
If you purchased or leased a new vehicle, the auto insurance policy you bought along with the vehicle may already include gap insurance. Before you request gap insurance quotes online, double-check with your existing agent to see if you already have the coverage. If you are planning on purchasing or leasing a new vehicle, remember to include gap insurance in your budgeting.
Mitigate Depreciation with Gap Insurance
Most people are aware that new cars depreciate remarkably fast in their first year off the lot. While this shouldn't necessarily deter consumers from purchasing new cars, it's important to be aware of the gap in your loan amount versus your vehicle's actual value. To put it simply, gap insurance covers this gap.
