Should I Get Gap Insurance?

Many people view gap insurance as an expensive investment and think they do not need it. Yet, if and when it becomes necessary, it could be one of the most important investments you can make. Car gap insurance can help you to recoup some of the losses after a significant accident that would not otherwise be covered by your traditional auto insurance policy. In many cases, this form of car insurance is essential to minimizing financial risk.

What is It?

How much do you owe on your car? If you have an auto loan, the amount you owe on your car's loan may be higher than what your vehicle is worth. This is quite common because auto loans tend to be put in place based on the sale price of the vehicle, but as a car rolls off the lot its value drops significantly. This directly impacts your ability to recoup your losses if you are involved in an accident.

For example, perhaps you've purchased a new vehicle for $15,000. Your loan is for that amount. However, after a few months, the vehicle is no longer new and its value is now $13,500. However, you still owe more than that on the vehicle's loan. Gap insurance helps to cover that remaining amount if you’re involved in a car accident.

Who Benefits from Gap Insurance?

On average, a vehicle purchased in new condition will lose about 30 percent of its value in the first year alone, and in three years, as much as 50 percent. As a result, if you are buying a new vehicle, add gap insurance to your auto insurance plan. It is also beneficial if:

• You are leasing the vehicle.
  
  
• You have put less than 20 percent down on the purchase.
  
  
• You are financing the car for more than 60 months.
  
  
• You are rolling negative equity into your new loan from a previous loan you have.
  
  
• You log 15,000 or more miles on the car each year.

If you are unsure if gap insurance is important for your needs, talk to your car insurance provider. Learn what your options are. Generally speaking, it is inexpensive and can provide incredible benefits to you including financial protection in the event of a significant accident.