We have all heard it before, your vehicle loses so-and-so percent of its value as soon as you drive it off the lot. It’s a downer thing to have in your mind after you have done miles of research, test drove a bunch of vehicles, and you have found the perfect car that you love and want to take home. It doesn’t make it any less true though. In fact, between that and the miles you start piling on your new ride, the value of your vehicle really takes a hit for the worse!
So what happens if you get into an accident and the value of your vehicle is actually less than what you owe on it? This could be a real nightmare scenario. You would either have to come out of pocket to pay off the remainder of the loan, or roll your loan into your next vehicle if that is an option. We all have those friends with the $900 a month Honda Civic payment right?? This scenario can be avoided with GAP insurance.
What Is It?
GAP Insurance for cars covers the difference between the value of your vehicle if it is totaled or even stolen, and the amount you owe on the loan or lease of that vehicle. For example, you owe $20,000 on your car. You are involved in an accident and your collision coverage steps in. The value of your vehicle is only $12,000. That $8,000 gap would be paid by the GAP coverage (see where it got its name from?!?). Without it, you are on the hook for that $8,000! Ouch.
Do I Need GAP Insurance?
With that being said, do you need GAP Insurance? Short answer, not everyone needs it. For example, if you have put down a larger down payment of 25+% on the vehicle, you may never arrive at the scenario above. Or if you opted for a shorter loan term. I would say anything in the 12-48 month range GAP probably isn’t for you. However, once you get to the 60+ month range for your loan term, I would strongly consider GAP. Last but certainly not least, if you purchased a vehicle with a low price tag, GAP is probably not necessary. One instance where I will always advise opting for the coverage is when you lease a vehicle.
All in all, GAP can provide some really solid financial security and protect you from an unexpected hit to your finances. Enjoy the new vehicle you just purchased! The Staples Agency is here to help and will happily consult with you on if you should look further into GAP insurance and its benefits.