Buying a brand new car means paying a significant amount more than buying a used vehicle. However, your driving risks remain the same (if not more). Considering this, it is important for vehicle owners to have ample protection in place for their car. If an accident occurs right after you purchase your car, a basic car insurance plan may not be enough. Gap insurance, though, may help. What's this protection? How can it help you protect yourself?
A Drop in Value Happens Right Away
When you go to a dealership, you anticipate buying a new car. This means no one else owned it previously. But, as soon as you drive the car off the lot, it is no longer brand new. As a result, there is a near instant drop in value for your car.
The problem occurs when you are in an accident right away. For example, perhaps a week after owning the car, you are in a collision. The car insurer says the vehicle is a total loss. What happens, then?
- Your auto insurance company will pay you what the car is worth at the time of the accident. Remember, this is likely less than what you paid when you bought the car.
- Every car insurance policy has an upper limit. This is the most it will pay.
- If there is a difference between what you owe on the car loan and the value paid by the insurer, you must pay for the difference out of pocket. You may need to keep making payments on your loan – even if you do not own the car any longer.
The best way around this is to invest in gap insurance. It helps cover the difference between what you owe and what the car is worth. It applies specifically to situations like this. Buying gap insurance is beneficial for anyone purchasing a new vehicle. It does not always make sense to purchase, though. Often, when buying a used car, the value does not depreciate as quickly. Therefore, there is less risk of having this occur.
Work with your auto insurance company at 800-286-6353 before buying your next car. Your goal is to protect your investment in the vehicle. Your car lender may require gap insurance as well. In all cases, coverage can help shore up some of the value. This minimizes the financial losses you may suffer as a result of the vehicle purchase. It keeps you financially sound if the worst occurs.
Also Read: Paying Your Car Insurance? Here are Your Options