Are you planning to purchase a new car or have recently bought one? Imagine yourself, still driving the vehicle decades after its purchase, sharing some highway bonding together. “Indeed, having a car is a rewarding investment,” you would tell yourself.
Sorry to burst your bubble, but in reality, cars do not last that long. According to statistics, 30% of new cars (less than 1 year old) are stolen, vandalized, or totaled in accidents. You still feel secure because of your auto insurance right? What if they would not give you the amount of money you need to pay off your car loan? To get out of this situation you need some sort of contingency plan – GAP insurance.
Many car buyers are unaware that the value of cars depreciates greatly the moment they leave a car dealer. According to statistics, 20-30% of the car’s selling price is depreciated from its total value. For example, you took a loan for a $25,000 car and you paid $5,000 as initial payment. When driving your car home its value will automatically go down to let’s say, $20,000. That means it is as if you did not pay $5,000 at all. What is worse is that your car’s value depreciates on a daily basis.
If you get into an accident in the first 12 months after purchase, you would be in big trouble. By that time the market price of your car has gone down to just $12,000. This is the amount of money your auto insurance company will pay you. However, you still have not paid off your car loan completely. Given that you have already paid $10,000, you are still $3,000 short of paying your loan in full. You are now left alone to pay for something you do not own anymore (the insurance company claims the damaged or totaled vehicle after it pays the claim). To avoid this terrible situation, the answer is GAP insurance.
The function of this insurance is to pay for the “gap” between the amount an insurance company has paid and the money a client still owes in his car loan. In our example, assistance from GAP will be $3,000. GAP insurance is strongly recommended to those who have car loans or are leasing their vehicles. Although there are some car dealers who include it in the car loan deal, many choose not to offer it so better search for it yourself.
As for the price, GAP is relatively cheap compared to the assistance it will give you in difficult times. Get GAP insurance now and obtain peace of mind.