Gap Insurance Coverage: Is it worth It?
Gap insurance is also known as total loss replacement coverage. People who owe more on their vehicle than their car is worth need gap insurance. Gap insurance covers the remainder after you have been paid out the total value of the car after a total loss. Often people will buy collision coverage and don’t understand why they had to reach into their own pockets to pay for an accident. Chances are they had an upside down loan.
It’s important to do some number crunching when you buy insurance. Begin with what you owe and consider your loan amount. Check the Kelley Blue Book Value against what you owe and see which one is greater. If you owe more than what your car is worth, you will want to consider gap insurance.
Well before buying auto insurance, the best thing you can do is to be careful when car shopping. Often, the sticker price on the car you want will exceed its worth. Be conscious of how competitively the car you want is priced. Find out why the sticker price is so high and try to haggle it down. Some people make emotional purchasing decisions, even after finding out that they would be paying more than the value of the car. It’s most important to protect this expensive asset by insuring it responsibly.
It’s also important to keep in mind that your car depreciates the moment you drive it off the dealership lot. Do not think that your car is worth what you paid for it 5 minutes prior. New cars depreciate by the thousands immediately after purchase.
You’ll want to sit down with your agent and really dig into the numbers to see what’s most cost effective for you without any gaps in coverage. If you do have an upside-down loan (the car is worth less than you owe), don’t buy gap coverage from a car dealership. You will pay much more from the same coverage you can buy from your current insurer. There’s no difference in quality, so why pay more?
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