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New Car? Make Sure You Have Gap Insurance

You stop every day on your way to the office and gape at the red car in the showroom window. And then comes that month with all the overtime to get that project completed. In addition the boss shows his gratitude and adds a hefty bonus, making your day. On Saturday morning you rush down town to buy the car.

You need insurance. You do not take the car yet – the salesman insists that you have insurance before you do. You rush home to organize cheap car insurance. Start by getting a few different auto insurance quotes.

Finding cheap car insurance can be quite tricky and you have to write down your findings. You start off with auto insurance quotes and move on from there, checking one cheap car insurance policy against the other and calling for more auto insurance quotes as you go along. Today you get the policy and on Monday you pick up the car.

Now, what if an accident occurs soon after you take your brand new ride off the lot? You have full coverage insurance, right?

The moment you drive your new car off the lot, the value of your vehicle plummets, sometimes as much as 20%-30%. Say for instance you pay $25,000 for your new vehicle and have an accident a month later. You probably have only made at the most one payment and if you did not put any money down your loan amount is still close to the $25,000 purchase price.

Unfortunately, even with full coverage, which includes comprehensive and collision, you will only receive the market value of your vehicle which could be as much as 20%-30% lower than the purchase price. That means you may be stuck paying that 20%-30%. On a $25,000 car, depreciation of 20% would be $5,000! That amount could be more if you financed your taxes and license into your loan.

The answer is Gap Insurance. In this case if you have Gap insurance with your current insurer, it would insure you for the difference between your loan amount on the car and the actual market value of the car. But, not all insurance companies offer Gap insurance.

Gap insurance will insure one for the difference between what one would owe on a vehicle and what an insurance company says it's worth. This insurance is a must for someone who is considering purchasing a new vehicle since a new vehicle depreciates right after it is driven off the dealer's lot.