’)Congratulations on purchasing that new car. There’s nothing like enjoying that new car smell! If you’re looking for car insurance for your new car, consider adding gap insurance to your car insurance policy.
Gap insurance is coverage that pays the difference in what you still owe for your car if it is totaled in an accident. Let’s say you bought a car for $25,000 a year ago and it is totaled today. You still owe $23,000 on your loan, and the car is valued at $18,000. Your car insurance company will pay around that $18,000 value when it’s totaled as total vehicle value, but there’s still a $5,000 gap between that and what you owe on the vehicle.
Having gap insurance would pay for that $5,000 gap so you can pay off your vehicle and move on.
Benefits to Gap Insurance
Having gap insurance has many benefits, and is worth considering if your car is three years old or younger. After this point, the gap between your car’s value and what you owe gets narrow, and gap insurance no longer becomes a smart value for you.
Saves You Money. Having gap insurance keeps you from having to scramble to find several thousand dollars to pay off your car loan when your car is totaled. Given that you will also need to buy another car, this financial hardship is enough to send many people into bankruptcy.
Peace of Mind. Can you imagine the stress of first totaling your beloved new car, worrying about any passengers who may have been injured in the accident (including yourself) and then realizing not only do you have to buy a new car, but you also have to quickly pay off the totaled one?? Gap insurance can eliminate a large chunk of this stress.
Get a New Car. If you have a few thousand dollars saved away, it’s better to put that toward a new car to reduce your auto loan than to put that money toward paying off a car you no longer get value out of. You won’t have a trade in, so anything you can put toward the purchase of a new car will help you get a better auto loan rate and lower monthly payment. Gap insurance helps you keep that money by paying off your loan on the previous vehicle.
What You Need to Know
Gap insurance is useful for the first three years of your car’s life, so if your auto loan extends beyond this period, check to see what the car’s value is versus how much you owe on the loan. Once these two numbers intersect, you can drop the gap coverage as it’s no longer useful.
If you pay for your vehicle with cash, or put down 25% or more when you buy your car, gap insurance might not be necessary.
Contact your insurance agent to see how much adding gap insurance to your insurance premium would cost, and ask for advice on whether it’s a good idea to add to your policy.
