While at the dealership shopping for a new vehicle, you’ll likely hear “gap insurance” mentioned by the sales representative you’re working with. Since buying a vehicle is such a significant investment, it’s always a good idea to take measures to protect that investment and make sure that you get the most for your money. Gap insurance is one such measure you can take.
What is gap insurance?
Essentially, gap insurance covers the difference between what your vehicle is currently worth and what you still owe on your auto loan in the event of an accident where your car is severely damaged or totaled. Since new vehicles lose a significant amount of their value as soon as you leave the dealership lot and as much as 40% of their value in the first two years alone, you may owe more on your vehicle than what it’s actually worth in the first few years after buying.
How does gap insurance differ from standard auto insurance?
In most standard auto insurance policies, when a claim is made, only the depreciated value of the car – or the current market value – is covered, even if you still owe significantly more on your auto loan. As a result, you’re left paying for a vehicle you can no longer make use of.
When does gap insurance make the most sense?
Gap insurance can always be beneficial, but it makes the most sense in a few main situations. You will definitely want to consider it if:
You made a down payment of less than 20% of the vehicle’s cost
You financed your new vehicle for 5 years or longer
You purchased a vehicle that has a rapid depreciation rate
Where can I get gap insurance?
When financing a vehicle at a car dealership, they will often offer you the option of purchasing gap insurance. If you want to look into other options, however, you can often get it through your standard car insurance.
For more information about types of car insurance you can buy with your car, contact us at Tipton Auto Group.