Sure, you’ve got your New Hampshire auto insurance, but do you know whether or not you’ll wind up taking a serious financial hit if your car is totaled? If you don’t also have GAP insurance on your car loan, you might be in for a big, unpleasant surprise.
Everyone knows that the moment you drive your car off the lot, it loses value. So much so that even a few years into your vehicle loan, you may not be covered. If your car is totaled after an accident during the first few years of depreciation, you may not be covered. This is why, in addition to what you already have for insurance, you should think about investing in GAP insurance on your auto loan.
Defining GAP coverage
GAP stands for “Guaranteed Auto Protection” insurance. The point of GAP insurance is to cover the difference (or the “gap”) between the market value of your vehicle and what you owe on your loan. For example, if your auto insurance company is only willing to pay $12,000 and you owe $13,500, GAP insurance steps in and pays the $1,200 difference. Depending on the policy, your GAP insurance may also cover your deductible.
Why GAP insurance is necessary
Like we said, your new car loses value fast. In the first two years, a car can lose a full third of its value! Yet, it’s entirely likely that you will owe a higher amount on the loan. If it’s totaled, your checkbook might be, too.
Your auto insurance company is only going to pay out a specific amount of money, based on the make, model, and year of your vehicle. This value, known as the “Actual Cash Value” or ACV, is an industry-standard number that’s used by most auto insurance companies.
GAP with benefits
However, depending on your policy, your GAP insurance may offer more than paying off that loan. Some GAP insurance policies offer other perks. For example, a particular bank offers a GAP insurance policy on their vehicle loans that will not only pay off the balance of the loan, but it will also provide an extra grand off the cost of a new car loan. So, not only will you come out even on your old loan, you can buy a new ride for a thousand dollars less.
How to purchase GAP coverage
Usually, GAP coverage is available at the time of your loan signing. This means that if you obtain your loan through the dealership, you’ll have the option to buy GAP insurance through the dealership.
Be careful here. You might not realize it, but dealerships tend to take a pretty hefty markup on add-ons like GAP insurance. One dealership we know charges in the neighborhood of $650 for a GAP policy that a local credit union offered for $210. (Incidentally, you’ll often find you’re better off getting your loan directly from your bank or credit union. Dealerships tend to toss in closing fees and other costs that the bank doesn’t.)
So, if you’re buying a new car, don’t skip over the GAP insurance. Unless you’re paying significantly less than book value for the car, GAP auto insurance is almost always a good deal.
Save Money on Your Auto Insurance!
Save money on GAP insurance and auto insurance in general by contacting Morin Agency today at (866) 538-2544. We’re here to answer your questions and provide you with an upfront honest direction. For more information, or to receive your free New Hampshire auto insurance quote.