2 Situations When You Need Gap Auto Insurance

If you have recently financed a new vehicle or you have a car that has been financed for a long period of time, the question of insurance surely came up at some point. Although your agreement with the finance company may only require that you carry a standard, full coverage policy, doing so may not be in your best financial interests. Gap insurance exists to cover the monetary difference between what you owe on the car and what the insurance company determined its value was. In addition, there are a variety of factors that can impact whether or not you should get this type of supplemental insurance, so it is a good idea to thoroughly understand it before making your decision.

#1-When Your Car Is Brand New

Although there are many benefits of buying a brand new car, its rapid depreciation is not one of them. Specifically, it could lose as much as 15-25% of its original value annually for the first 5 years, with a whopping 11% loss as soon as you drive it off of the lot.

Unfortunately, since your standard full coverage policy will typically only cover the value of the car if it were completely destroyed or stolen, you would almost definitely end up owing money on the vehicle that you cannot drive. As a result, Gap insurance is the perfect way to protect yourself from incurring unnecessary debt when you are still paying off a new car.

#2-If Your Vehicle Is Financed For Several Years

It is not unusual today to finance a new vehicle for up to seven years, and previously owned vehicles are often financed for five years. Obviously, that will keep your payments lower, but it also means that you are likely to pay a lot of interest. Given that many car loans carry a high interest rate, the financial impact for you after you can no longer drive the car could be immense. 

Gap insurance is the logical purchase to keep and maintain if you know you will be paying on the vehicle for several years. It is also important to note that because Gap insurance must be paid up-front, if you were to sell, trade or otherwise not use the policy before you needed to use it, you would probably be eligible for a partial refund.

In conclusion, Gap insurance is a great supplement to your existing full-coverage auto insurance policy. If you purchased a new car or financed your car for a long period of time, it can protect you from being forced to pay back thousands of dollars to your lender if your car is completely destroyed or stolen. 

Visit a website like http://esiinsurance.com/ to learn more.