What is Automobile Gap Insurance?
The secret to peace of mind when buying a new car is Automobile Gap Insurance. If your car is totaled or stolen, Gap insurance plugs the difference or gap between what your car is valued by your insurance company and the outstanding value of your car loan or lease. It is not unusual to owe more on a car than its book value.
Time for Automobile Gap Insurance?
As soon as a new car is driven off the lot, its value depreciates. A typical car loses as much as 30% of its cash value within the first months of ownership. Automobile Gap insurance is a smart purchase when: 1) you have leased a car, 2) you have paid a minimal down payment on a new car, 3) you have included outstanding debts from a previous auto loan in your new loan, or 4) you have taken out a loan which will take more than four years to pay back. Check your current coverage before you buy a new car; sometimes your policy will include Gap insurance. Also some states mandate including this coverage in lease contracts. As you make your monthly payments, the difference between the car’s value and your outstanding debt will diminish; then the gap is no longer an issue.
Sources for Automobile Gap Insurance?
Often your current auto insurance carrier offers Automobile Gap insurance. If your insurance company does not, other companies sell this coverage. You still need basic collision and comprehensive coverage, but the policies can come from different companies. Some auto dealers offer Gap insurance at time of purchase. Make sure you have shopped around, because their offer may be more than buying directly from an insurance company. You do not have to buy it the moment you purchase your car. Most insurance companies will not offer Gap insurance on older cars, but buying coverage within the first year of purchase is still fine.
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