You’ve probably heard people tell the joke that the moment you buy a new car and drive it off of the lot, that it’s already decreased a great deal in value. While that might be a bit of an exaggeration, if you do end up in an accident and your vehicle is totaled, you could be on the hook for the difference in what the insurance company says your car is worth and the amount of the loan. That could end up being thousands of dollars that you’ll have to come up with, and that’s on top of having to come up with the money to buy a new car. Thankfully, there’s something called gap insurance, as WSB radio reports.
Gap insurance works to cover the difference between the outstanding balance on your loan and the market value of your car in the event that it is considered a total loss after an accident.
For example, you take out a loan to buy a car at $34,000. However, the moment you drive off of the lot, the market value of that vehicle is $31,000.
Now, your insurance only wants to pay the market value of the vehicle. Even if you just bought it a week ago, at $34,000.
If you have gap insurance, it would step in and pay the remaining $3,000.
Even if you were not at fault, that gap in difference can come out of your pocket. This can apply to leased vehicles as well.
Now that we’ve established that gap insurance is a good thing, where do you get it? Your current insurer is the best bet. Adding it to your comprehensive collision coverage should only raise the premium about $20 per year.
You’ll want to avoid the gap insurance offered by the dealership as they tend to inflate the premium and roll it into your loan. So, you’ll pay more going that route than just adding the coverage to your existing auto policy.
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