Important Additions to Your Auto Plan: Gap Coverage
If you have auto insurance, or are thinking about getting it, you may want to consider adding on gap coverage. Gap coverage, which is an optional form of car insurance, protects people with big car loans that they’re going to be paying off for a while. This way, with gap coverage, you as a car owner will never find yourself in a position where you’re paying off a loan on a car you can no longer drive due to an accident.
Gap coverage is best for people who have bought a brand-new car and put almost no money down on it (something more and more common these days, as dealerships try to tempt people into buying a new car with very sweet deals). You may have paid $25,000 for the car, and still owe $20,000 on it – but in the months that you’ve been driving it, the car has depreciated faster than your monthly car payment. So, you owe $20,000 on your car, but it’s worth $17,000. That $3,000 discrepancy is where gap coverage comes in handy. If your car is stolen or damaged beyond repair, after you’ve paid your deductible, your insurance company will only pay out what the car is worth. That means you could get less money from your car insurance provider than will pay off the remainder of your loan, and you’d then be “under water” – paying off money to something that is worthless.
If you choose to get gap coverage, you as a car owner would see your car loan forgiven if you ever find yourself in the situation described above. It has happened enough times to enough people to be a legitimate concern, and if you can afford to get gap coverage it could turn out to come in very handy some day. You might want to look into other additions to your auto insurance policy to make sure you are fully protected for everything you need, like towing and labor coverage or rental reimbursement.
Gap coverage isn’t offered by all insurance companies, and it may not be available everywhere. To learn more about gap coverage, be sure to speak to an auto insurance expert.