Buying a new or slightly used car can be an exciting time. Driving your new vehicle off the lot after negotiating and signing all the paperwork can feel like a major victory. Unfortunately, during all the excitement you may forget some of the smaller details of buying a car, like gap insurance.

Gap insurance, like general auto insurance, is another way to cover your losses in case of an accident or theft of your vehicle. Insurance is purchased to be used in case of emergencies, which is why some people overlook this very important aspect of purchasing a vehicle.

 

What is Gap Insurance?

 

Gap insurance is an insurance policy that covers the cost gap between what you paid for your vehicle and what its value is once you drive it off the lot. There are very few cars that increase in value over time; most often your vehicle will depreciate as soon as it becomes a used vehicle, even if it was new when you bought it.

Let’s put it this way: if you were to buy a new, expensive car, and that car was in an accident or stolen soon after it was bought, the money you still owe on the vehicle and the depreciated value of the car could be very different amounts. Without gap insurance, you’d be stuck paying for the whole cost of your car, rather than its actual value.

Your auto insurance typically covered the market value of your car, which is less than the amount you bought your vehicle for in the first place. Your regular auto insurance covers the total value of your car, which decreases right after you purchase a new or barely used vehicle. There is a time when the value of your car plateaus, and the gap becomes smaller as you’ve paid off more of your car loan.

 

Do you need gap insurance?

 

You might want to consider purchasing gap insurance on your car if:

 

• You are buying or leasing a new or barely used vehicle
• You are buying an expensive vehicle
• You aren’t able to make a large down payment on the car, which means you owe more for your loan or financing amount versus how much your car is worth when you drive it away
• You wouldn’t be able to cover the cost of the price gap on your car yourself should your car be wrecked or stolen

Basically, if you will lose a few thousand dollars between what your car was worth new, and what it is worth used, you should purchase gap insurance.

 

How to Buy Gap Insurance

 

Gap insurance is something that car dealerships will offer you when you are signing the paperwork for your car. However, you don’t have to buy the gap insurance they are offering- this is often highly marked up. Before you finalize the purchase of your vehicle, see what your auto insurance company offers for gap insurance policies. This can often be a cheaper option than the policies offered by the dealership, and some companies will allow you to bundle your auto insurance and a gap insurance policy.

As with other insurance policies, shopping around for a good deal can be highly beneficial. You’ll not need to pay for this gap insurance for long, so it’s a worthwhile expenditure.

You don’t have to keep your gap insurance forever; it’s really only good for the first few years you’ve owned a vehicle. Your car, on average, depreciates 30% in value in its first year, and 20% in the second year.

At a certain point, the market value of your car stabilizes, and it becomes more beneficial to just have an auto insurance policy in most cases. The first few years that you own your car, before you’ve had time to significantly pay some of it off, is the most vulnerable point in terms of financial losses you might face if the car is totaled or stolen.

 

Gap Insurance Costs

 

Gap insurance costs vary depending on your auto insurance company and the value of your car. If your car is more valuable or has a higher depreciation value based on how much it is originally worth, you may have to pay a bit more for gap insurance. Gap insurance averages about $40 a year, though, so it is affordable for most people who want a little extra coverage on their auto investment.

 

Let’s talk more about it. Please insurance, contact our team at ProtectiveAgency.com or call (877) 739-9367. Our licensed insurance agents will be happy to answer any questions you have.