Do I Need GAP Insurance?
The In’s and Out’s of GAP Insurance
When it’s wise to have GAP insurance
Accidents happen. Cars get stolen and never recovered. No matter how careful you are as a driver and car owner, bad things can happen to your vehicle. As if to add insult to injury, your auto insurance settlement may be much lower than you expect because it is based on the car’s current value instead of the price you paid for it. If you bought your car for $20,000, and your auto insurance pays you only $15,000 after your car gets totaled, you’ll still owe $5,000 for a car you can’t drive. That’s where GAP insurance comes in. If you have GAP insurance, your insurer pays the difference between the new price and the actual vehicle cost instead of you. In other words, they pay the “gap” between the two numbers. This gap is caused by depreciation and starts to grow the moment you drive off the lot.
Do I need GAP Insurance?
The big question you’re probably asking yourself is “Should I buy GAP insurance?” The answer depends on a number of factors. If your car is completely paid off or if you have a lot of equity in it, you don’t need to buy GAP insurance.
Additional guidance on GAP insurance
However, there are some situations where buying GAP insurance is a very good idea. Vehicles that traditionally depreciate quickly probably need GAP insurance to protect you from the depreciation. Also, if you put less than 20 percent down, you finance for more than 60 months, or you lease your car, it can be a good protection. GAP insurance can be good to have if you’ve rolled negative equity from your previous car loan into a new one. Finally, if you drive more than 15,000 miles every year, you might want to consider GAP insurance.