What is gap insurance?
What is gap insurance?
What is gap insurance?
Auto depreciation is an unfortunate part of car ownership that has created unnecessary stress and even financial hardship for some drivers. At Empire Lakewood Nissan serving Lakewood Denver Aurora Longmont, we work hard to help our customers get into a new Nissan that they will thoroughly enjoy for years, but accidents can and do happen even to the safest drivers. You may assume that your auto insurance coverage would protect you against excessive financial loss related to a collision or another mishap, but depreciation can affect the claim. What should you know about depreciation and auto insurance claims before you finalize the purchase of your next Nissan?
How Auto Depreciation Works Against You
A typical auto insurance policy pays benefits that are based on the current market value of a vehicle. The current market value is directly impacted by depreciation. Consider that the typical vehicle loses 20 percent of its original value during its first 12 months on the road, and depreciation continues to affect auto value for the next several years as well. Unless you make a large down payment when you buy your new vehicle, you likely will find yourself upside-down on your loan. This means that you will owe more money on your auto loan than your vehicle is worth for at least a short period of time and potentially for several years. What happens if you get in an auto accident when you are upside-down with your loan? Your auto insurance policy will not fully pay off your loan balance in a total-loss situation. Essentially, you would be required to pay the insurance deductible and any amount of your auto loan that is not paid off by the insurance coverage. This could equate to thousands of dollars in some cases.
What Is Gap Insurance
There is a special type of auto insurance that is specifically designed to protect you against this type of financial loss scenario, and it is called gap insurance. What is gap insurance? This coverage pays the difference between your standard auto insurance policy’s payout and the outstanding loan balance in the event of a total-loss situation. You will still need to pay your deductible, but you will not need to pay potentially thousands of extra dollars to pay off the balance on your auto loan.
When You May Need Gap Coverage
Gap insurance is beneficial to drivers when there is a possibility that being upside-down on an auto loan could occur. As mentioned, making a smaller down payment on a new car could increase your risk of being in this situation. This may be particularly true if you chose a longer loan term. In addition, you may start out your ownership experience upside down if you rolled over a balance from your old car loan when you set up your new loan. You also should be aware that some vehicles depreciate at a faster rate than others. With this in mind, some vehicles may be predisposed to placing their owners in this type of situation if other steps to keep the loan balance down are not taken. While this type of coverage is optional when you buy a vehicle with a car loan, it is required when you lease a vehicle.
Request more information
If you anticipate any of these factors being in place, it makes sense to consider adding this extra protection to your coverage. You can purchase it directly from the dealership through the financing department, or you may be able to buy it when you set up coverage through your auto insurance company. Do you want to learn more about gap insurance coverage and explore the cost in detail? Contact our Empire Lakewood Nissan associates serving Lakewood Denver Aurora Longmont today.