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Do You Need GAP Insurance?

Accidents happen, whether you’re driving a beat-up grocery go-getter or taking a new car of the lot for the first time.  Even drivers with immaculate records experience not-at-fault accidents.  While these accidents cause little injury to a driving record, they can cause plenty of damage to a vehicle.

Since accidents are always possible, a new car is an expensive purchase that requires protection. New cars usually require higher levels of insurance coverage while they are being financed – and GAP insurance is one of the options.

What is GAP Insurance?
Gap Asset Protection insurance, more commonly known as GAP insurance, is coverage for the difference (or gap) between a car’s market value and the car’s purchase price.  Unlike standard collision and comprehensive coverage that only cover damage based on a car’s current value, GAP insurance will cover the variance between what the insurance claim pays and the amount financed.

 

Why is GAP Insurance Important?
While they are expensive and last for years, cars are not solid investments.  In fact, cars depreciate an average of 15 to 20 percent of the retail price during the first year. Within the first few years, many owners find themselves in an upside-down position where they owe more on the vehicle than it is worth.  This is even more the case for cars purchased with a low down payment or at a high interest rate. 

Even if a car is stolen or totaled in an accident, the owner is still on the hook for the amount borrowed, not the amount of the car’s current value.  Without GAP insurance, the difference between an insurance payout and automobile loan comes straight from the owner’s pocket.

 

Is GAP Insurance Right for You?
Car insurance is legally required, where GAP insurance is not.  If your car is nearly paid off, the additional financial protection is not necessary.  However, if you are leasing a vehicle or expect to be upside-down for the majority of your installment loan, GAP insurance is worth the small monthly premium that could save you big bucks.

 

 

 

 

 

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