As I navigate the market for a new car, I must remind everyone that if you are financing a car, make sure you obtain GAP insurance from the bank or finance department at the dealership. GAP insurance will save you from getting the bad news that, while the accident was not your fault, the fact that you owe more than what the car is worth is your problem, and your problem alone.
According to the Insurance Information Institute, GAP insurance helps to protect you financially when you owe money on a depreciated vehicle. The Institute says: “When you buy or lease a new car or truck, the vehicle starts to depreciate in value the moment it leaves the car lot. In fact, most cars lose 20 percent of their value within a year. Standard auto insurance policies cover the depreciated value of a car—in other words, a standard policy pays the current market value of the vehicle at the time of a claim.
“If, when you finance the purchase of a new car and put down only a small deposit, in the early years of the vehicle’s ownership the amount of the loan may exceed the market value of the vehicle itself. In the event of an accident in which you’ve badly damaged or totaled your car, GAP insurance covers the difference between what a vehicle is currently worth (which your standard insurance will pay) and the amount you actually owe on it.”
There are several reasons to buy GAP insurance for your new vehicle. If your down payment is less than 20 percent of the cost of the car, you’re financing for 60 months or more or you’re leasing, you’ll want GAP insurance. In fact, it’s generally required for a lease. You also may want to consider GAP insurance if you’re purchasing a vehicle that will depreciate faster than the average and if you’re rolling over negative equity from an old car loan into a new one.
While many car dealers will offer to sell you GAP insurance, you may find that purchasing this coverage from your auto insurer will cost less. In fact, the Insurance Information Institute says that if you add GAP insurance along with collision and comprehensive coverage to the policy for your new vehicle, you’ll add only about $20 to your annual premium. Add in under-insured motorist coverage and you’ll be driving off the car lot well protected. It should be emphasized that you must procure GAP insurance for your vehicle at the time of sale, or in some instances within 30 days. Best practice is to have it in place prior to driving off with your new vehicle.
Need help navigating the world of insurance for your new vehicle? Call us and we will review your policy with you.