Purchasing a new vehicle can be exciting and overwhelming! You go to the car lot, test drive dozens of vehicles, find the perfect one, and now are sitting at a desk signing what feels like a thousand documents. The salesman asks if you want a warranty, special add-ons, gap insurance, and more… with each option adding additional costs if you say yes. It’s easy to say no to all of the above as the vehicle itself is already so expensive but wait! You may want to reconsider saying no to gap insurance.
Gap insurance is an optional insurance coverage that is offered by a dealership, financial institution, and some insurance carriers to individuals who are purchasing a new vehicle. It helps protect you financially in the event that your vehicle is totaled or stolen.
Gap insurance works by fillings the gap created between the actual cash value of your vehicle and the remaining balance of your lease or loan. For example,
Let’s say you purchase a vehicle for $30,000. If that vehicle depreciates 15%, its cash value would be $25,500. If your vehicle is stolen and you still owe $27,000 on your loan, you would be responsible for the $1,500 difference.
This is where gap insurance would come into play. Gap insurance would cover the difference of $1,500 in the example. Otherwise, you would be paying that amount out of pocket.
How do you know if you need gap insurance?
The Insurance Information Institute recommends that you purchase gap insurance if you:
- Made a down payment of less than 20 percent
- Are financing for 60 months or more
- Are leasing a vehicle
- Purchase a vehicle that depreciates quickly
If you are worried about being able to pay the difference out of pocket in the event of a loss, purchasing gap insurance could give you peace of mind.
How do I purchase gap insurance?
Typically, your car salesman will offer it at the time of purchase when you purchase your vehicle. You can usually include it in your loan. This gap insurance is usually provided by either your car dealership or your financial institution.
If you have already purchased your vehicle or would like another option, you can also ask your insurance agent! Depending on your insurance carrier and state, you may be able to get gap insurance from your insurance carrier either as a stand-alone product or as part of your auto insurance policy.
To discuss your insurance options and determine if gap insurance is right for you, give us a call at 844-GANNONS or visit www.gannonassociates.com today!