Once you drive a new car off the dealer’s lot, its value immediately decreases. If the car is totaled, Auto Insurance may not pay the full amount of the loan. Making up the difference is on you.
Gap Insurance Fills the Financial Void
Gap Insurance is exactly what the name implies. Also known as loan-lease coverage, the Bellingham Bulletin reports that it fills the gap between what you owe and what conventional Auto Insurance determines is the cash value of the vehicle. If your vehicle is stolen or totaled in an accident, this coverage pays the difference.
While not necessary for every car purchase, loan-lease coverage may be crucial when your loan or lease exceeds the value of the car. Some lenders may even require you to get the coverage.
Forbes advises buyers to consider Gap Insurance if they are rolling an existing loan into the new loan. However, not all policies cover the additional negative equity. Before buying a policy, shoppers should confirm what will and will not be covered.
Situations where a buyer may want to consider a loan-lease policy are:
- The car is a lease
- Negative equity from a previous loan is rolled into a new loan
- Your down payment is less than 20% of your can’s value
- Your loan will be five years or longer
- The car depreciates quickly
And while the dealership or lender may offer to sell you a loan-lease policy, you do not have to buy it from them.
As your local, independent insurance agency for more than 50 years, the Keating Agency can help you find the right policy to meet your needs. We have partnerships with more than two dozen companies. This gives us the ability to craft a policy as individual as you are. Give us a call.