What is Gap Insurance and why would you NEED to purchase this insurance?
GAP insurance generally covers the difference between what your car is worth and what you still owe the finance company, should you experience a total loss of your vehicle due to an accident or theft.
GAP insurance is necessary when leasing a vehicle and usually included in the contract, since you don’t actually own the car and most likely have not put down a large down payment.
GAP insurance may be beneficial if the balance of your loan is higher than the actual value of your vehicle. Since your regular auto insurance is designed to pay you the current cash value – not the current loan balance. If you don’t have GAP insurance – you may be left paying off your loan without the benefit of having a car to drive.
According to Edmunds.com, the average new car loses 11 percent of its value once you take it off the dealer’s lot. Your new car continues to depreciate between 15% – 25% during the first five years.
Spending a small amount of time researching what your vehicle is worth once off the lot, as well as a year or two down the road may help you decide whether you NEED GAP insurance. Use a reliable source for your car valuation, such as Kelley Blue Book or NADA Black Book.
Should you decide that you need GAP insurance, keep in mind costs may vary between insurance companies, so shop around and compare cost to find the best rate available.
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