A new car is both an important practical expense and a serious investment of money. Insurance protects both your finances and the vehicle you need to work and handle your daily needs.
But standard auto insurance may not cover all your costs in the event the car is totaled. You may need an additional coverage known as gap insurance. Here's what you need to know about gap insurance.
What Is Gap Insurance?
Cars and trucks automatically begin depreciating in resale value as soon as they roll off the lot. The amount you pay for it is not the amount you'll be able to sell it for in the open marketplace. And insurers base their valuation of totaled vehicles on the market value rather than the loan value.
The result is a gap between what you owe on the loan and what you'll get from the insurer if the car is totaled. For example, if the insurance company values your new truck at $30,000 at the time of an accident but you owe $40,000. Minus your $1,000 deductible, you would receive a check for $29,000. You may still owe $11,000 to the loan company for a truck you no longer have.
Gap insurance is designed to fill this gap. Owners may purchase a specialized policy that will cover the difference between the two.
Who Needs Gap Insurance?
Anyone whose vehicle is worth less on the resale market — or under other common insurance valuations — than the amount of their loan should consider gap insurance. In general, this includes those who buy a new car as the first owner and whose vehicle is less than a few years old.
How Long Do You Need Gap Insurance?
Gap insurance provides a vital layer of financial protection for new car owners. And while no one likes to pay more for their insurance coverage, it's important to remember that you won't always need this insurance.
Make a point to schedule regular check-ins on your loan balance versus the vehicle's value on the open market. Also, talk with your insurance agent about how the carrier values vehicles so you use the right calculations. Once your loan balance is lower than the car or truck's value, you should be able to stop this coverage. Its job will be done.
Where Can You Learn More?
Want to know more about gap insurance? Whether you've already bought a new car or you plan to do so, the best place to begin is by meeting with an auto insurance agent in your state today. With their help, you'll soon have the protection you need to drive safely and confidently.
Reach out to an auto insurance company near you to learn more.
Share22 August 2022
