Disclaimer: Informational statements regarding insurance coverage are for general description purposes only. These statements do not amend, modify or supplement any insurance policy. This website does not make any representations that coverage does or does not exist for any particular claim or loss, or type of claim or loss, under any policy. Whether coverage exists or does not exist for any particular claim or loss under any policy depends on the facts and circumstances involved in the claim or loss and all applicable policy wording.
You are enjoying your new car until someone blows through a stop sign and totals it. No problem, you have insurance. Unfortunately, you owe more on your car loan than the car is worth. Hopefully, you have guaranteed asset protection, or GAP insurance, to cover the difference.
There are several reasons why your auto insurance payout would not equal the outstanding balance on your auto loan. When you buy a new car, it noticeably depreciates in value as soon as you drive it home. It goes from a new car to a used car in that short amount of time. Unless you made a hefty down payment on your auto loan, you will owe more on your car than it is worth.
In most situations, you will pay down your car loan faster than your car continues to depreciate. In time, the value of your car will exceed your outstanding debt on it. In the meantime, you need gap insurance to avoid a potential financial disaster.
When Do You Need Gap Insurance?
If there is a considerable discrepancy between the amount you owe on your car loan and the value of your vehicle, GAP insurance could reduce your stress. Paying on a car loan is not fun, but continuing to pay when you don’t have the car anymore can be devastating.
You should consider GAP insurance if…
You financed more than 80% of the value of your vehicle.
The term of your auto loan is longer than 60 months.
You purchased a vehicle that will depreciate quickly.
You rolled over debt from your trade-in to your new car loan.
You leased your vehicle.
Is GAP insurance worth it?
Talk to anyone who has been left paying off a loan for a car they no longer drive, and you will understand the value of GAP insurance. To figure out what GAP insurance is worth to you in dollars and cents, you can do some calculations.
Check the terms of your auto loan to see how much you will owe after you own the vehicle for one year. Compare that to the estimated value of your car in one year, estimating how many miles you will put on it in that time. This exercise will give you an idea of how much money you will owe out of pocket if you get in an accident and the insurance company declares your car a total loss.
Where should you buy a GAP insurance policy?
When you buy a new car, the dealership will typically offer you a GAP insurance policy. Your lender may also try to sell you a GAP policy. It’s important to shop around for the best deal, but also, you want to be sure you are not buying more insurance than you need. The best place to buy GAP insurance on your new vehicle is the company that insures your vehicle. GAP insurance can be added to your car insurance policy at a lower rate than buying a separate policy from the dealer or the lender.
What does GAP insurance cost?
The cost of GAP insurance may be surprisingly small compared to its value. Contact Northern Insuring for a quote today!