You are so excited you just bought your first brand new car. You leave the
parking lot of the dealer, you head off onto the open highway and the most horrible
thing you could imagine happens - you are hit in the rear end, you lose control of
your car and in the blink of an eye, your car is destroyed. Fortunately, you are
safe. Unfortunately, your car appears to be totaled.
However, I Have Auto Insurance
You made sure before you arrived at the dealership to take delivery of your new
car that you had the proper insurance coverage that is required by law. Nevertheless,
did you know that when you drove off the new lot that your car value plummeted upwards
Chances are that when you met with your insurance company they recommended both
comprehensive insurance coverage and collision insurance
coverage. Even if you were to collect the full amount of your collision
insurance for the instance related above, you most likely still owe about 30%
of the value of your car. That could be as much (or more) than $5,000 if you assume
your car cost $25,000!
The Good News
There is good news! Most insurers include a type of coverage called gap
insurance in your policy. Gap insurance is specifically designed to cover
the difference between the actual market value of your car and the amount that you
still owe on it.
What Is Gap Insurance?
Your insurance company is going to determine a value to place on your car and
they are going to reimburse you based on that value. Unfortunately, they will use
the cost to replace your vehicle and they will reduce it by what is called a depreciated
amount. As we mentioned earlier, your car lost upwards of 30% of its value the
minute you drove it off the lot!
What Does Gap Insurance Cover?
Gap insurance will cover any accident and theft. It is best to discuss your gap
coverage with your insurance agent before you need it! Gap insurance is offered
generally only on brand new cars that are going to be financed.
© iStockphoto.com - craigmm
Is Gap Insurance Required?
When you apply for a loan for your new car, your lender will require full
comprehensive and collision coverage but seldom will they require gap insurance.
This is because they understand that in the event of a total loss, the borrower
is responsible for the difference between what is paid by the insurance company
and the balance of the loan.
Where Can I Buy Gap Insurance?
Although most car dealers routinely offer gap insurance, you should first
determine if your existing policy covers has gap coverage. You should get a
price quote from your existing insurance agency since gap
insurance offered by dealers usually has a higher premium.
How Do I Know If My Insurance Company Offers Gap Insurance?
If considering a new car, talk to your insurance agent first. You
may discover that your current auto insurance includes gap insurance. If not,
find out if they offer it. Most insurance companies do offer gap insurance,
if yours does not you may want to check with another insurer rather than purchasing
gap insurance from a dealer.
Be safe when driving your new car, but do not leave your insurance to chance.
Before you make that first trip to the dealership to purchase a new car, find out
about gap insurance.
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