What is Gap Coverage?
Gap insurance closes the gap between what your auto insurance company estimates your car is worth (if it has been stolen or totalled) and what you still owe to the finance company. It is especially important for new car owners to carry this coverage. Your car depreciates immediately just by driving it off the dealer’s lot and will most likely depreciate anywhere between 20% to 30% within the first few months.
If your $20,000 car depreciates a mere 20%, you will already be out $4,000. Should disaster strike wherein your car is either totalled during an accident or stolen, not only will you be missing your brand new vehicle, but you will also owe the remaining balance.
Who should buy Gap Coverage?
- If you lease a vehicle. You should never lease a car without Gap insurance. If the car it totalled you’ll owe the balance, often payable immediately.
- If you have made a low down payment (generally speaking, one that is less than 20%).
- If you have bought a car that does not hold its value.
- If you have high interest rates.
- If you have taken out a loan with an extended term. An extended term means lower monthly payments but it also means that it will take longer for you to develop equity.
- If you borrow more money for extras such as service plans and extended warranties. You will be upside down on your loan before you even drive off the lot.
After a home, a new car is the largest purchase many of us ever make. An investment this big deserves to be protected for its full value. Gap insurance covers what traditional insurance does not and in the long run could end up saving you thousands of dollars.
Often when you are signing your final papers, a dealership will offer you several different options of bells and whistles to the end of the purchase price. They are hoping that you will make a spilt second decision and opt for one of them. I suggest that you take the time to consult with your insurance agent, rather than making a rash decision. You will be rewarded by getting that same peace of mind for much less.
Let us at Farrell Backlund do all the work for you. We will take the time to quote you with all 12 companies that we write with in order to find you the best policy to protect your valued asset.