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GAP INSURANCE
You just got into an accident and totaled your
year-old vehicle. You are not worried though, because you
have
full collision and comprehensive auto insurance
coverage and are expecting full replacement of your car,
at no cost. This assumption is very wrong! Unless you
have gap insurance, you are likely going to lose a couple
of thousand dollars.
What is 'gap' insurance?
Gap insurance covers the 'gap' between the true value
of your new car when you get into accident and the amount
you owe for your
new car loan.
Why get 'gap' insurance?
'Gap' insurance protects your new car investment.
There are so many different finance deals out there, 0%
down and/or no payments due for the first six months.
These types of
auto finance offers mean a tremendous
difference in the amount you owe and the real value of
your car.
Cars, especially new cars, depreciate every year. So, if
your car is stolen or totaled in accident, you are going
wind up losing a big chunk of money if you don't have gap
insurance.
When you owe more for your car loan than the vehicle is
worth, you are 'upside-down' on your car loan.
An example of how not having 'gap' insurance can
effect you
Suppose you purchased a vehicle for $35,000 and took
out an auto loan for 100% of the purchase price. After
several months, the automobile may be worth $30,000 as a
result of depreciation. Your monthly auto finance
payments have only lowered your loan obligation by
$1,000. If the car was totaled via an accident when
stolen, your insurance company would pay you $30,000, the
mentioned value of your car. You would still have to pay
the what you owe for your auto loan for the car,
which is $5,000.
Leasing and gap insurance
Although gap insurance is important for people
looking to
buy new cars, it is equally common when you
lease a vehicle. People that lease cars often put no
money down, resulting in being upside-down often, and
quickly. Many leases will have gap insurance factored
into the price. Other leases will require you to shop for
it on your own.
How do I get gap insurance?
Gap insurance is offered by most auto insurance
companies. However, gap insurance is only available for
new car loans or new car leases. Some auto insurance
companies will include gap coverage in their regular
comprehensive coverage.
Are they any instances when gap insurance does cover
damages?
Sometimes gap insurance policies will not compensate
100% of a car's value if the car is stolen or if a car is
damaged from a natural disaster. When in the market to
buy gap insurance, make sure that you ask any potential
carrier when circumstances are not covered by gap
insurance.
Learn how you can
save money on auto insurance. |
