When you purchase a new vehicle, you may be offered gap insurance. What is it? What does it cover? Well, gap insurance is one of those expenses that seems like a waste until you need it.
When you purchase your vehicle, you’re buying it at the price that it’s currently valued. Unfortunately, when you drive it off the lot, the value has already depreciated around 11%. That means a $20,000 car is worth $17,800 after you’ve already agreed to pay $20,000 and more. After the first, year, the value decreases by up to 25%.
While these statistics are unfortunate, they don’t affect you unless you get in a car accident. The value of your vehicle will not equate to the amount you’ve agreed to pay. That means you’ll be left with an amount for which you'll be responsible. No one wants to pay for a car that’s totaled. Gap insurance is available just in case this situation happens. With this insurance, the remaining balance is paid, and you don’t have to spend anything out of pocket.
While gap insurance covers you in the event of a total loss, there are certain things it doesn’t cover. Gap insurance doesn’t cover your car payments if you lose your job or if you’re unable to pay. Additionally, it may not pay for repairs or a rental vehicle if you need one. If your car is repossessed, don’t expect gap insurance to pay. Finally, most gap insurance policies refuse to pay for a new vehicle if your previous one is a total loss.
Have more questions? See more answers from Alot.
