WEDNESDAY, DECEMBER 15, 2021
Have you wondered what happens if your car is totaled? Most people assume that their insurance will cover the full cost of replacing the totaled vehicle, but this is often untrue. In many cases, your insurance will pay out the amount of what the car is currently worth, not what you originally paid or what you may owe on a lease or loan, which can cause problems. To protect yourself from a situation like this, you may want to consider purchasing gap insurance.
What Is Gap Insurance?
Guaranteed asset protection, or gap insurance is an optional automobile coverage that helps you transfer the financial risk if you are involved in an auto accident and you owe more for your vehicle than the amount that it’s worth. This is referred to as being “upside-down.”
Since a new car’s value drops significantly the minute it’s driven off the lot, if you are involved in an accident that totals your vehicle in the first few years you own your vehicle, you may find yourself owing the finance company more than the vehicle’s actual value. Gap insurance provides for the “gap” between the two amounts.
Is Gap Insurance for Everyone?
Gap insurance may not be the right fit for everyone. Here are some things to consider:
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New vehicle financing options: If you took advantage of a zero percent down payment deal or put a small amount of money down, or stretched the life of your loan past 3 years, gap insurance is most likely a good idea. That’s because the vehicle typically depreciates considerably faster than you have paid down the value on your vehicle’s loan.
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Used vehicles: Gap insurance is typically not available for used vehicles. To cover your risk, it’s wise to put down an ample down payment and finance the vehicle for the shortest possible timeframe.
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Leased vehicles: For those who lease a vehicle, gap insurance is considered an essential coverage because typically there is no trade-in and little cash put down to lease the vehicle. Similar to purchasing a vehicle, if the car is a total loss, you will owe the difference between what you have paid and what you owe on the balance of the lease.
Top Ways to Save on Your Auto Premium
If you’re looking for ways to lower your auto insurance premium, there are some things you can do, which include:
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Drive less to qualify for a low-mileage discount.
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Drive a car with safety features such as anti-lock brakes and airbags.
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Install an anti-theft device.
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Ask about our multi-policy discounts.
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