Vehicle depreciation begins the minute your drive off the dealership lot. Most cars depreciate about 20 percent of their value within the first year of ownership and use. When you get a standard auto insurance policy for that vehicle, it typically covers the car’s value in the event of an accident, but it’s only covering the depreciated value of the car. So, what happens if you owe more than what it is worth and want coverage for that amount? This is where gap insurance comes in.
What is Gap Insurance
Gap insurance is an additional policy that you can get to cover the difference between what your vehicle is worth and the actual amount that you owe on that vehicle. Your standard policy will pay out what your vehicle is worth in an accident and the gap insurance will cover the rest, which is really handy for many situations. Because most cars lose value more quickly than you can pay it off, it’s beneficial to get a policy to cover that amount if it’s a substantial amount.
When Gap Insurance Makes Sense
You may benefit from getting gap insurance if you purchased a new car and made less than a 20 percent down payment on it. With today’s vehicle prices, it’s not common for people to have 20 percent or more to put down on a vehicle. The dealership may offer some options to you at signing, but don’t just jump on it. Reach out to us first—we will likely save you money. Another situation where gap insurance is beneficial is if you financed the vehicle for longer than 60 months or if you are leasing the vehicle. Many lease contracts require gap insurance, so be sure to research your options before signing a lease.
Some vehicles depreciate faster than others, and if this is the case for your new ride, gap insurance should be highly considered. According to US News, these are currently the top ten cars that depreciate the fastest: BMW X3, Lincoln MKZ, Mercedes-Benz S-Class, Volvo S60, Mercedes-Benz E-Class, Maserati Ghibli, Audi A6, Nissan Leaf, BMW 5 Series, and BMW 7 Series. If you own one of these cars, reach out to us about your gap insurance options.
What Gap Insurance Will Cover
Gap insurance can be helpful in additional circumstances than just car accidents. Most policies will cover the difference if your car gets stolen or if it gets damaged by a fire or flooding. If the insurer deems it a total loss, gap insurance will come to your aid.
There are times, however, when gap insurance may not be necessary, and you don’t want to get into a policy that you genuinely don’t need. If your loan balance is close to your car’s value, you don’t need to worry about adding this insurance. Rather than adding gap insurance to your car loan at the dealership, hold off, then give us a call. We will honestly assess the situation and provide you with pertinent information on whether a gap policy is right for you.