If you have just purchased a brand new car is still on the verge of paying for it, then car insurance companies and even auto dealers will strongly recommend you to apply for Gap Insurance. The reason for such is that Gap Insurance is designed to pay for the difference of the dealership price (the amount you paid for when you bought the car) and the present value of the car.
To explain further, note that the moment you drive a newly purchased car to the pavement outside an auto dealers’ company, its value is already depreciating. This is a sad fact about automobiles. So, if for example you have paid $30,000 for a Toyota Camry and applied for car insurance 5 months later, its estimated value would have depreciated to an estimated $26,000. What if, you are caught in accident and you have not yet paid your car’s loan in full? Your bank loan will still oblige you to pay for the original amount of $30,000 when you purchased the Camry and not the depreciated value of $26,000. You might be wondering; how about the $4,000 difference?
Here is where Gap insurance takes its course. It actually pays for that “gap” or “difference.” Though Gap Insurance is not mandated by Law, it sure is a requirement especially when leasing cars. This is because it does not only protect your investment but it also gives assurance to car dealers that they will get the total amount of the car when purchased in case of theft or accidents. This kind of insurance keeps both the owner and dealer of the car at peace albeit the knowledge that a new car will most likely attract thieves than an old one.
Before buying a brand new car, it is wise to inquire if your car insurance company is offering Gap Insurance. In case the car insurance company of your choice is not offering the said insurance, then you will be obliged to purchase one from other companies making the situation more complicated and you, shelling out unnecessary money. It’s like paying for 2 car insurance policies when you can get one with both options.
Your car insurance and its policies are for you to customize in accordance to your needs. Make sure to compare the options offered by several insurers before making a deal. Purchasing a sleek red car is great while purchasing a customized car insurance policy is smart. Choose your sides.