Did you know that the minute a newly purchased car or vehicle rolls out of a seller’s lot, its value already depreciates dramatically? The unit becomes a slightly used car and not a brand new car or automobile anymore. It is only considered brand new while it stays in the showroom and depreciates twenty to thirty percent once its wheels touch the outside world. As if proving Murphy’s Law, you get into a collision where a newly bought vehicle becomes totally wrecked. Even if it was not your fault, your insurance provider will not base claims on the actual value, but on its depreciated value. This sounds unfair because you still have to pay amortization based on the original value yet you are only covered twenty to thirty percent less. How are you going to recover this automatic loss? This is where gap insurance enters the picture.
Gap insurance will protect you and provide a guarantee that whatever happens, you will still be able to pay for your car’s dues. It will cover the gap or more accurately the difference between original price and depreciated value. It will save you from financial stress while you take care of physical pains endured after the accident or mishap.
This is how gap insurance works: for example, you bought a new car that is worth $45,000 after your loan with a bank was approved. The moment you drive it out of a dealership, it has already depreciated by 20% or the value of your auto becomes $36,000 just by doing so. You start to enjoy the comforts that a new car bring while you make sure that you are being responsible behind the wheel. Within a week, an irresponsible drunk driver in a truck collides with you and leaves your slightly-used car beyond repair.
While you forget worrying about hospital bills (you are quite sure your personal injury protection will cover that), there is the fact that your insurer can only cover up to $36,000 even if your balance with a bank is still $45,000. If you thought about purchasing gap insurance prior to this, then the difference of $9,000 is also covered.
With this recession looming over the world, buying a car on cash-basis (this coverage is unnecessary) becomes a luxury. The practical decision really is to buy and amortize payments with your loaning bank. If this is the case, this type of coverage will save you from more stress than you can handle. Unexpected losses will also be avoided, therefore consider this as a worthy investment.