Friday, May 31, 2013

What Is Loan / Lease Gap Auto Insurance?

If you’re like most people, you take out a loan when you buy a car. Like most of us, you also probably think that if your new car costs $25,000, it is still worth $25,000 the next day when you show it to your friends. Well, think twice because the minute you drive your car off the car dealer’s lot, it depreciates in value. Within weeks you may have a gap between the loan amount and the value of your car.

When You Buy/Lease a New Car, Do Not Ignore Gap Coverage
Guaranteed auto protection, also known as Gap Insurance, covers the gap between what you owe on a car and the actual cash value if your car is totaled or stolen in a covered loss. With a car lease, the same principle applies; your car may be worth less than the lease amount. Gap coverage is not a substitute for your regular car insurance policy; it is an additional coverage.

Do You Need Gap Insurance Coverage?
When you take out a loan or lease a new vehicle, you may need Gap coverage since most
vehicles depreciate in value — and quickly — from the moment you leave the dealership.
Typically, a car depreciates in value approximately 30% within three months of purchase. If your car is totaled in a covered loss, you'll have to pay out of your own pocket the difference between what you owe and what your vehicle is worth on that day.
Gap coverage will close that gap. You may not need GAP if you make a large down payment on your vehicle as the value of the car may not be more than the value of the loan or lease. If you paid cash for your car, you do not need GAP insurance.

What Gap Insurance Can Do
Let’s say you swerve to avoid a deer and end up driving down an embankment and total your car. Although no one's hurt, the cost to repair your vehicle is higher than its actual cash value (ACV). Your insurance company determines the ACV is $20,000. If you have a $500 deductible, your insurance company will pay $19,500 to settle your claim. You bought your car a few weeks earlier for $24,000 and haven't even made the first payment yet, so you will still owe the full amount to your lender. You are responsible for paying the remaining $4,500 to your lender. Gap coverage will pay the $4,500 which includes your deductible, but be aware that not all Gap policies cover your deductible.

How Do You Buy Gap Insurance Coverage?
You buy Gap coverage at the time you purchase or lease the new vehicle in either of two ways. You can ask your independent insurance agent to add Gap to your car insurance policy or you can ask the finance/leasing company. Generally, the cost might be higher if the coverage is purchased within the finance agreement because you are paying for the coverage plus some fees. The price the finance company can charge is not regulated, but the cost of the coverage through your auto insurance policy is regulated by the state. Often leasing companies include Gap coverage in their contracts; make sure you review your lease contract so you don’t pay twice.

What to Look for When Purchasing Gap Insurance
 Gap insurance coverage is similar from insurance company to insurance company. However, you should check with your independent insurance agent as there potential exclusions and limitations such as:

 Overdue lease/loan payments
 Security deposits not refunded by the lessor
 Costs for extended warranties
 Deductions for wear and tear, prior damage, towing, and storage
 Equipment added by the buyer

What You Should Do

As your independent insurance agent, Dostal & Kirk works to find you the best coverage at the most competitive rates. Contact us when you decide to purchase a car and we will help you decide whether you need Gap insurance. We take great pride in providing professional customer service to you as we handle all your insurance needs.  Please call (877) 562-6801 to discuss your options and review all of your coverages.

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