Do You Need Gap Insurance for Your Vehicle?
Some drivers benefit from gap insurance. This is a type of insurance covering the gap in what your car is worth and what coverage your standard insurance provides. This is an optional type of auto insurance. However, some drivers purchasing a new vehicle may benefit from having it. Consider this coverage carefully before you invest.
How Does Gap Insurance Work?
If a person buys a vehicle for $25,000 as a brand new car, he or she may obtain a loan on that car at the time of purchase. He buys it, pulls off the lot, and heads home. At this moment, the car is no longer new. If he tried to sell it, he would have to sell it as a used car. As a result, the property’s value depreciates. That is, it is no longer worth the $25,000 the driver paid for it.
As a result of this depreciated value, the auto insurance provider may not provide coverage up to $25,000 if an accident occurs. Cars generally depreciate in value very quickly.
A month after owning the car, the driver is in an accident. The mechanics cannot fix the vehicle. The insurer totals the car. But, it only pays out $20,000 to the owner. This occurs because the market value of the car depreciated during the time the driver owned it. This gap between the coverage available and the amount of the loan can be troublesome to repay at this point. After all, you still have to repay your debt to the lender. Gap insurance comes into use at this time. It’ll help make up the difference between the damage coverage and the value of the loan.
You can obtain gap insurance from various providers. Some dealerships provide it as well. Gap insurance from a lender is also an option. However, it is best to talk to your traditional auto insurance agent. You may get a better price on it if you purchase it. They can also coordinate the gap coverage with your existing policy. Again, it is important to price out costs from these providers.
Who Needs It?
Not everyone needs to purchase gap insurance. It tends to be better for those who have a long lease or loan on the car. This includes loans over five years. Additionally, if you transferred the negative equity from another car to a new one, this also increases the benefit of a gap policy. Some vehicles depreciate faster than others. In these cases, it can also be beneficial. Furthermore, newer vehicles usually stand to benefit the most. Cars that you have paid off, on the other hand, might not need this protection.
Speak to your car insurance provider about this coverage. It can make a big difference in the long term if an accident does occur.