Gap Insurance
Thinking of buying a new car? Are you looking at the red convertible or that big van where you can ride with your family in? If you have chosen which one to buy and the auto loan deal is set, what will happen if your car gets into an accident especially in the first few months off the lot? Not everyone knows that once you drive your car off the dealer, the market value of your car could be 20-30% lower than its actual price. Say for example you got a $30,000 vehicle. After a month, you got into an accident and your car is a total wrecked. The most you have paid for your car loan is one month and the amount you still have to pay is near the actual value. Your auto insurance even with a full coverage will only pay you the current market value of the vehicle which has already depreciated to about 20-30%. You will now be stuck in paying the rest of your loan amount.
This is where Gap Insurance comes in. Gap Insurance is defined as a type of insurance that pays the difference between what is owed on the vehicle and what the insurance company says the vehicle is worth in the event of an accident or theft.
Gap Insurance as the name implies will close the gap between what your insurance company pays and what you owe the finance company. In our example above, this will pay for the 20-30% depreciation of your car. Depending on your policy, Gap Insurance usually covers theft and accident but it is still wise to check and know your exact coverage. Usually only newer cars being financed can be insured by Gap Insurance. This type of insurance is also a must when leasing a car. It will be your lifesaver when accidents happen.
