Should You Purchase GAP Insurance Coverage?

GAP InsuranceChance are good that are when you purchased your new vehicle, the dealership offered you, along with extended warranties, sealants and other extras, gap insurance or “guaranteed asset protection” to protect you from your cars value depreciating lower than your vehicle’s loan balance. GAP insurance may be good idea to purchase it if you don’t make a big down payment and the thought of making payments on a vehicle that was totaled would make you cringe.

It is not uncommon for a vehicle to depreciate by 40% the first two years of ownership and most of that is in the first months of ownership. If your vehicle cost you $50,000 and a few months later you have an accident and it is totaled. For ease of illustration – let’s say your vehicle fair market value is now 40,000 and you owe $48,000. You will be on the hook for $8,000. The loan company will want their money. It’s the old paying for a dead horse scenario.

If you leased a vehicle it was most likely required or factored into the lease. It was added in to protect their asset.

Here are the big tips: If you don’t put down a large down payment and/or you don’t want to take the risk of losing the difference between loan value and market value – you should purchase it.

If you decide GAP insurance is a good idea – get it from your current auto insurance agent. It will most likely be significantly less.  Do it right away as it may not be possible to do it later.  Some companies only allow it at the time of purchase or for a limited time after.

The dealership’s finance person will most likely put the hard sell on you and tell you want it you must purchase right then and there or not at all. They don’t want you contacting your agent, getting advice, and comparing.

If you are a sharp shopper you should tell the finance person thanks, but no thanks. Your insurance agent can add it to your policy – probably for less than half – and if you want to drop it after two or three years you can take it off your policy. It’ll be easier It would be best to call your agent before hand just to make sure your company offers it. There are, although not many, a few companies that do not offer it.

Many people have been purchasing GAP insurance from the dealer at the time of purchase. It can be an emotional and exciting time. Hey – you’re getting a new vehicle and it’s a happy fun time. However, it is easy to get caught into buying the insurance and paying double to protect your new asset. People will buy more when they are excited and in the buying mode. Call your agent and see what it would cost. Use the money saved for extra payments or some new accessories.

This article was written to inform and save you some money. Stay aware.  Take a few minutes and do the math. You will be quite surprised how much you will save. It will probably be around two vehicle payments.

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Should you buy GAP insurance?

GAP Insurance

How, when, where, why, and what is Auto Gap Insurance?

You can purchase auto gap insurance from your agent or from your car dealer. When you purchase a new car your auto finance company or the dealer will likely offer you Auto GAP insurance. You should get a quote from your insurance agent as it will likely be much less if you purchase from your current insurance carrier. Dealers and finance companies make good money selling you insurance, warranties and other things when you’re already buying and they make it easy. However, easy doesn’t mean less.

Auto gap insurance is insurance you can purchase to cover the “gap” between the cost of repaying your auto loan and the amount your insurance company will actually give you for a totaled car. Generally, the minute you drive a vehicle off the lot it depreciates in value. Since a new auto depreciates as soon as it leaves the lot, it’s going to be worth less than you owe on it. If you were to total your new car the same day you bought it, the money your insurrt will pay out for the car will not likely cover the balance of the loan.

Gap insurance is the only way to make sure you will not be in debt after losing your new car. GAP insurance can be inexpensive – especially if purchased from your agent and worth doing especially if you don’t put down a lot of money when you purchase your vehicle. Making payments on a vehicle you don’t have could be a big bummer.

Gap insurance can sometimes be purchased on newer used cars, where the dealer price of the car still may be significantly higher than an insurance payout would cover. Some insurance companies will only cover new or near new cars.

So how do you get gap insurance? First ask your current or prospective insurance provider if they can give you gap coverage. Just like you would shop around for your basic auto insurance premium, you may want to shop around for your gap coverage. It is usually very affordable, and worth the extra cost to ensure that you do not end up carless and still be stuck with a car payment. Most dealers will try to sell you their own auto gap insurance as an add-on, but rest assured you can get a better deal by purchasing this special coverage from your insurance agent.

Gap insurance is often required when leasing a car and the coverage may be included in the lease price, but if not you will need to make sure you are covered. Since you didn’t purchase the car, the dealer will lose money if it is totaled. So they may want repayment from you immediately.

Finally, if you have an older car you are probably not eligible for gap coverage. If you still owe money on your older car, the best thing to do to protect your investment is to put more down and pay off early.

Whether or not to purchase gap insurance is a decision only you can make as a car owner, balancing gap insurance premium cost against the potential risk of finding yourself with a totaled car in the future. Like all insurance, you never know when you might need it, but you sure are relieved that you are covered when an accident happen. It’s generally inexpensive and a good choice – especially if purchased from your agent.

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