What is gap insurance and how does vehicle gap insurance coverage protect you against the difference in the value of the car you are driving and the amount you owe on the vehicle? Better yet: why do you need auto gap insurance?
From the minute that your drive a new car off of a dealership lot, the value of said automobile drops substantially. You would be surprised at the number of people who get in car accidents shortly after buying a brand new car. Really, it does happen a lot.
The reason? They aren’t really well acquainted with how this new car operates, accelerates and are easily distracted by the new car features. Or maybe they get high on that new car smell. But no matter what the cause, just because you have a brand new car doesn’t mean you will get another brand new car if you total the one you just bought.
What most new car buyers don’t know is that if they get into a car accident right down the street from the dealership and that their car is totaled that their insurance company will only pay you for the depreciated value of the new car. It will not pay you the full amount that you owe, which is often substantially more.
This is where auto gap insurance coverage proves to be especially important. Most people mistakenly assume when they have car insurance and they have an accident in which the car is totaled, they will be given enough insurance money to buy another similarly expensive new car. That is, unfortunately, not the case. Car insurance carriers will only pay you the free-market value of your vehicle on the day it was totaled. Even if it is the day after you bought it.
Automotive gap insurance will cover you in accident or theft cases. Depending on the extent of your coverage, some things like storm damage or other “acts of God” will be covered and will pay the difference in the amount you owe and the value of the car so you will be free to get a new car and not wind up being totally financially underwater at the start of your next car loan.
No one requires that you have car gap insurance coverage but if you are buying a new car it is a very wise decision to add auto gap insurance to your insurance coverage plan.
Depending on the value of your car and how much you still owe on it, even a 5-year old car could use vehicle gap insurance coverage. It might be the difference between you being completely covered or left in the lurch for $3,000 after you total a car.
Many leases have car gap insurance coverage built into the contract but all leasing contracts are different so you need to read the fine print. Many of those leases rates that sound too good to be true in the newspaper do not include vehicle gap insurance coverage so be aware that if you crash one these leases, you will be left in the lurch for this gap insurance in the amount the car has depreciated.
You can buy auto gap insurance coverage from your insurer or even from your car dealer when you are buying or leasing your new vehicle. That decision is, of course, up to you but we advise you shop around for the best rates for vehicle gap insurance. Is it worth not checking out gap insurance rates? Probably not.