Sure, you’ve got your 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. Even your auto insurance policy may not cover the amount you owe on your car loan if your car is totaled after an accident during that first couple of years of depreciation. That’s why, in addition to what you already have for insurance, you might think about getting 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 what your car is worth according to the market and what you owe on your car loan. So, 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 owe more than that on your car 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 car. 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
Depending on your policy, however, your GAP insurance might do you even better than just paying off that loan. Some GAP insurance policies offer other perks. For example, a particular bank offers a GAP insurance policy on their car loans that will not only pay off the balance of the loan, but will give the consumer 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 bucks less.
Where to Get it
Usually, you get your GAP auto insurance where you get your car loan. That means if you get your car loan through the dealership, you’re going to have to buy the 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 the 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, too. The dealership usually tosses in some closing fees and other costs that the bank doesn’t.)
So, if you’re buying a new car, don’t skip 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. Call us at 866-538-2544 for more information or get a free New Hampshire auto insurance quote.