Bridge the Gap With GAP Car Insurance For Your New Car

There’s a certain amount of blind optimism when you buy a new car that assumes you’re going to have years of highway bonding before you have to worry about mundane things like car insurance-and having to replace it if it’s totaled! But forewarned is forearmed, and it pays to have a contingency plan in place in the form of GAP car insurance before you drive off the dealer’s lot.
What is GAP Insurance?
Did you know that the minute you slide behind the wheel and drive off the dealer lot your car depreciates in value? Studies have shown that in the eyes of an insurance claims department the Blue Book value of a car can depreciate as much as 20-30% the minute it stops being new and becomes somebody’s ride. That’s bad news in anybody’s book, but it’s extremely bad news if you took out a car loan to buy your car!
Most car loans are given out for the Blue Book value of the car before you hit the streets. That means that you may have taken out a $20,000 loan for the four door, family friendly sedan of your dreams that’s now only worth $16,000 in the eyes of your insurance company. If you total your car, if it’s destroyed by a freak accident or your car is stolen within the first year, they’re only going to cut you a check for $16,000. Since you probably won’t have had time to make much of a dent in your total loan amount, you’re going to be left holding the bill for the balance.
Remember, your loan amount is due whether you have a car to drive or not!
So now you’re left with no car, a $4,000 bill and little chance of getting another car loan until you’ve scraped up the money to pay off this one. That’s a bad situation all the way around! You need GAP car insurance.
GAP car insurance is additional insurance coverage that will “encourage” your insurance company to ante up the amount of your loan rather than the Blue Book value of your car if it has to be replaced. That allows you to pay off your loan and walk away debt free. It also puts you in a position of being eligible to reapply for another car loan!
Do I HAVE to Buy GAP Car Insurance?
Whether you have to buy GAP car insurance or not is between you and your lender. Some lenders have the foresight to require it when they give you a loan to buy a new car (even if you’re buying a used car), some just don’t care. It’s a good idea to spend the little extra each month for a GAP insurance policy, however. For most drivers, especially in today’s economy, the gap between their car insurance and the loan is considerably larger than the balance of their checking account.