One of the most misunderstood and underutilized insurance coverages is gap insurance.
The easiest to explain gap insurance is to start from the moment you buy or lease a new vehicle. As soon as you drive off the lot, your vehicle starts to depreciate. In fact, many vehicles lose up to 20 percent of their value within the first year. Since most new vehicles are financed, what happens is the value of your vehicle depreciates at a faster rate than what you owe. And since insurance policies pay the current market value of your vehicle in the event of a claim, there are scenarios where you may still owe money to the finance company on a total loss.
Gap insurance is available to cover the gap between what your vehicle is worth and what you still own on it. Gap insurance is a good idea to consider purchasing if you:
- Made less than a 20 percent down payment on a new vehicle.
- Financed your vehicle for 60 months or longer.
- Leased the vehicle.
- Purchased a vehicle that depreciates faster than the average.
- Rolled over negative equity from an old car loan into the new loan.