Car owners often assume that if their car is totaled, it will be replaced at the amount they paid or at least the amount they owe. However, as many owners find out too late, that’s not always the case—learn why and what you can do to protect yourself.
Avoid the Financial Risk
Since a new car’s value drops significantly the minute you drive it off the lot, if you’re involved in an accident that totals your vehicle, you may find yourself owing the finance company more than your vehicle’s actual value. Gap insurance provides for the “gap” between the two amounts, guaranteeing that you don’t get hit by a big financial surprise too.
Guaranteed asset protection, or “gap” insurance, is an optional automobile coverage that helps you transfer the financial risk if you’re involved in an auto accident and you owe more for your vehicle than the amount that it’s worth. This is referred to as being “upside-down.”
Here’s some basic information on gap insurance:
- New vehicle financing options: If you took advantage of a zero-percent-down payment deal, put a small amount of money down or stretch the life of your loan past 3 years, gap insurance is most likely a good idea. That’s because the vehicle typically depreciates considerably faster than you have paid down the value on your vehicle’s load.
- Used vehicles: Gap insurance isn’t typically available for used vehicles. To cover your risk, it’s wise to put down an ample down payment and finance the vehicle for the shortest possible timeframe.
- Cost versus benefit: Gap insurance is offered for a nominal fee, which makes it a great value for anyone who finances or leases a new car.
- Leased vehicles: For those who lease a vehicle, gap insurance is considered an essential coverage because typically there’s no trade-in and little cash put down to lease the vehicle. Similar to purchasing a vehicle, if the car is a total loss, you’ll owe the difference between what you have paid and what you owe on the balance of the lease.
Don’t Get Caught Upside-down
Factors like your new vehicle’s make, model, and the terms of your loan or financing agreement, can all impact if GAP insurance is the right choice for you. If you’re purchasing a new vehicle, contact FBinsure at 508-824-8666 to learn about how gap insurance can complement your auto policy coverage options, and keep you from getting caught upside-down.
