With permission from iii.org
How gap insurance works
When you buy or rent a new car or truck, the vehicle begins to deteriorate in value when it leaves the car lot. In fact, most cars lose 20 percent of their value within a year. Ordinary car insurance covers the depreciated value of a car – in other words, a standard policy pays for the vehicle's current market value at the time of the claim.
If you finance the purchase of a new car and make only a small deposit, during the first years of vehicle ownership, the loan amount may exceed the vehicle's market value.
In the event of an accident in which you have seriously damaged or damaged your car, gap insurance covers the difference between what a vehicle is currently worth (which your standard insurance will pay) and the amount you actually owe on it.
When you may need gap insurance
It is a good idea to consider buying gap insurance for your new car or truck purchase if you:
- Made less than 20 percent payment
- Funded for 60 months or longer [1
- Bought a vehicle that is depreciated faster than the average
- Rolling negative equity from an old car loan to the new loan
Where you can get a gap insurance
Your car dealer may offer to sell your gap insurance on your new vehicle. But most car insurance companies also offer it, and they usually charge less than the dealer. Most car insurance policies, including gap insurance with collision and comprehensive coverage, add only about $ 20 per year to the annual premium. Catalog