Crash! You’ve just gotten into a four-car pile-up on your commute into work and your vehicle is basically totaled. You’re physically okay though, as are all the other drivers, and so you’re not worried because you have auto insurance. You’ll just call your agent, submit a claim, and get a nice tidy sum from your insurance company so that you can go out and buy (or lease) the identical car you just got a few years ago – maybe even with a few upgrades.
There’s just one issue – your standard auto policy is only going to pay out the current market value of your vehicle at the time of your claim. This could be problematic for you if the loan you took out to purchase your car is more than what the car is worth today, meaning that there is going to be a gap between what your insurance company writes the check for and the amount you actually owe to the lender.
If you don’t want to get stuck paying thousands of dollars out of your own pocket in this type of scenario, then adding a loan/lease gap endorsement is the right option for you. As its name suggests, this insurance option will provide coverage for the gap between how much you owe on your car and how much it is worth at the time of your claim.
Choosing to purchase gap insurance for your vehicle is a particularly wise idea if you:
Only put down 20% or less as a down payment, leaving you with a significant chunk of a car loan to pay off.
Financed your vehicle for 60 months or longer, which may have lowered your monthly payments, but also extended the amount of time it is going to take to pay your loan off.
Purchased a vehicle that depreciates faster than the average, potentially leaving you with a much larger discrepancy between the market value at the time of a claim and what you owe a lender.
Rolled over negative equity from an old car loan into the new loan, which can give you temporary relief from having to pay off your loan, and gets you a new car. However, it also significantly increases your debt and your monthly payments, possibly extends your loan term, and substantially drives up what you would owe to lenders should you have to make a claim on your new car because now you have two outstanding loans to pay off.
Lease a car, because, no different from a car you purchase, if your car gets stolen or if it is declared a total loss in an accident, a gap can occur between what the insurance company will pay and what is still owed on the lease. In fact, since most leases are three to four years long and vehicles depreciate the most in the first few years, the market value of your leased vehicle could be significantly lower than what you still owe on the lease contract at the time of your claim.
While you are never obligated to purchase gap insurance, if you have borrowed money to purchase or lease a vehicle, it is, at the very least, worthwhile to have a conversation with your insurance agent to determine if gap insurance would be a good option for your specific situation. It’s also important to know that there are many benefits to working with a local insurance agent, like ICNE, versus the dealership, when you are thinking about buying a gap coverage endorsement.
We welcome you to stop into either of our two convenient Massachusetts offices or contact us for more information about gap insurance or with any other car insurance questions. The ICNE team is always here to help you make informed decisions about protecting your vehicles.
If you’re ready for a more personal relationship with a trusted insurance agent, and a whole new outlook on car insurance, call us today at (800) 243-8134.
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