The decision to invest in a vehicle is a very exciting time in every vehicle owner’s life. The make, model and even color can all seem like tough, well thought out decisions. But after you have found your perfect match comes the real work, deciding how you’re going to finance and insure you vehicle. Have you ever thought about acquiring GAP insurance for your new purchase?
What is GAP insurance?
GAP Insurance, also known as ‘Guaranteed Auto Protection’, is a type of auto insurance that a vehicle owner can purchase to protect his or her self in the event the car gets totaled or stolen. If the vehicle owner still owes more on the car than the car is worth at the time of the incident, the GAP insurance policy will cover the difference.
For example, say Sally purchases a car for $30,000. A few months later she is involved in an accident where her car is deemed totaled. At the time of the accident her car is valued at $25,000, the amount she will receive from her insurance company. However, if Sally financed her car and still owes the full $30,000, Sally will be out by $5,000. GAP insurance covers this difference.
Who should purchase GAP Insurance?
To determine if you acquire GAP insurance, you should find out the current value of your car. If the current value is significantly less than the amount you still owe on it, you should purchase GAP insurance. You should also purchase GAP insurance if you are financing the entire price of a car with little or no down payment or if you are taking out a loan with an extended term to pay for the car. It is also important to consider the rate at which your car will depreciate when determining if you want to purchase GAP insurance.
New cars depreciate significantly in value the moment they are driven off the lot. If you car depreciation rate outpaces your car payments, especially in the event you are leasing your vehicle, then GAP insurance provides a safety net should anything unfortunate happen to your car.