Sep 06, 2017 / Auto & RV
You probably won’t notice it happening, but the moment you buy a new car and drive it off the lot, your car experiences instant and irreversible depreciation. In fact, by some estimates, your car loses as much as 11% of its value just by crossing that critical threshold. And, it doesn’t get any better from there. In the first five years of owning your vehicle, it will continue to depreciate by about 15% to 20% each year. So, what happens if you’re involved in an accident and your insurance company wants to pay you the market price for your vehicle, yet you’re still stuck with the full sticker price? That’s where GAP auto insurance can help.
GAP insurance covers the difference between what your car is worth and the amount owed, hence the name GAP. This type of coverage can be a wise investment, if you’re planning to buy almost any new or used car. If you want to hedge your risk against getting upside down in your car loan (the value of your car is less than the amount owed), GAP insurance can be a great way to get peace of mind. GAP insurance is usually offered through car dealerships, auto lenders, and most insurance companies, though it’s always a good idea to shop around for the best deals.
A word of caution: Be sure not to give into the dealership’s pressures to purchase coverage from them without comparing costs. Oftentimes you get less and pay more when you go through a dealership, so be smart and do your research. At Utah First, we offer excellent coverage at a competitive price, but don’t take our word for it. Check it out for yourself before making a decision.
GAP insurance typically isn’t that expensive, but, as with all insurance policies, there’s a good chance you’ll never end up using it. Again, it comes down to risk versus reward. If you made a small down payment on your vehicle purchase or agreed to a long term loan (more than 4 years), you run the risk of getting stuck with a loan or lease payment you don’t want. Likewise, if you drive a lot, your risk of getting in an accident increases, and GAP coverage might be a smart idea, especially if you can find an inexpensive policy, through your existing lender, for example.
Cars aren’t cheap, and many people balk at the idea of adding additional expenses to an already expensive purchase. But, adding a GAP insurance isn’t merely an unnecessary add-on. On the contrary, a GAP policy can be a great investment, if you’re planning to buy your car on credit. Just remember to shop around, compare rates, and find the right insurance provider for your needs.