If you're familiar with the concept of "fair market value," you'll know that as soon as your new vehicle leaves the car lot, it depreciates in value by up to twenty percent. What you may not know is that if your new car gets stolen or totaled within the first year that you have it, you're still going to end up paying a large portion of your loan, even if you have comprehensive auto insurance. Auto "Gap" insurance, originally known as "guaranteed asset protection" insurance, is meant to insure the difference between what your insurance company says the car is worth (the fair market value) and how much you owe on it.. There are many situations that encourage the purchase of auto gap insurance. It is often a required addition to a lease contract, as the leasing company must be guaranteed compensation should their vehicle be stolen or involved in an accident. You'll also want to have it if you're getting a new vehicle, especially one that is at risk for being stolen. Coincidentally, the most popular automobiles in a thief's eyes are also the most popular models sold. If thieves steal your vehicle, even if it's the night you get it, your insurance will only pay for the value of the car, and you'll be left paying on a loan that you're not benefiting from. Although many dealers will claim that you can only purchase gap insurance through them at the time of the purchase, in fact you can enroll in gap insurance anytime within the first twelve months of your purchase. Of course, the longer you wait to enroll, the less cause you have for it. After the first few years that you've owned your car, you will no longer need gap insurance, since the car's real value and the amount of your loan that remains is more approximately equal. The good thing about gap insurance is how reasonable it is to purchase. At only a few dollars a month, it can fit the budget of most new car owners. What stops people from purchasing gap insurance isn't usually the cost of the coverage, but their relative ignorance that it even exists. Loan companies won't tell you about it, nor will car dealers. They are guaranteed their money regardless. And if they do offer gap insurance at the time that you buy your car, you can often find a better rate on your own. One of the reasons car buyers aren't familiar with gap insurance is that it isn't offered in all states. In fact, it isn't even offered by some insurance companies. Connecticut, Louisiana, Maine, Nebraska, New Hampshire, New Mexico, New York, Virginia and Washington are states that don't offer gap insurance, although drivers in those states can petition the state Insurance department in order to encourage lawmakers to make it available. Similarly, those who now have an auto policy through a company that doesn't offer gap coverage can request that their carrier add gap insurance as an option. If you own an older vehicle and don't anticipate buying a new one anytime soon, it is probable that you will never need to know what gap insurance . But for those of you who are ever planning to buy a new vehicle that might require financing, gap insurance can be an indispensable--and affordable--alternative to paying out-of-pocket for an accident or theft that isn't your fault. |
