Gap Insurance: Why You Should Protect Yourself if You Finance Your Car
You have often heard the expression, hopefully you have not used it yourself, “I am upside-down” in my car. Though, that doesn’t mean your car is resting on its roof, it does mean you owe more on the car than it’s worth. Unfortunately, many people, the moment they drive off the car lot, already owe more on the car than they just paid for it.
I once had a client buy a brand-new car and, leaving the dealership, was t-boned as he exited the driveway. The car was totaled! In discussing his case, he told me the insurance company was going to pay him for his lost car less money than he owed the bank. Unfortunately, he was upside-down in his car! How was he supposed to pay the difference? He was without a car AND he had to pay out of his own pocket the difference between what the insurance company was paying him and what he owed.
Could he have been saved from that disaster? Yes, if he had purchased GAP Insurance! GAP stands for Guaranteed Asset Protection. Whenever you consider purchasing a new or used car and are putting down a minimal amount of down payment, or are simply aware that under the circumstances you’re going to owe more on the car than you know it’s worth, you should purchase GAP insurance. Should your car be totaled in a crash, GAP insurance will pay the difference between what you owe and what you receive from the insurance company.
Certain conditions apply, and when purchasing GAP insurance, you must make sure you clearly understand what it does and what it doesn’t. One thing it does not do is pay for any carry-over balances from your trade-in the dealer has agreed to pay in order to put you in a new car.
Though this is not the only pitfall of GAP insurance, you should be sure what GAP does do for you is clearly explained by whomever sells it to you. Before you buy a car, I recommend you speak to your insurance agent about whether they sell GAP insurance or can recommend an agency that does. If you decide to purchase it from the dealer, be sure any exclusions are clearly explained, and keep in mind, whatever the cost, it will be rolled over into your loan on which you will be paying interest.
GAP is a lifesaver for a lot of people. I strongly recommend you consider purchasing it when buying a new car. Make yourself fully aware of what it will cover in the event of a total loss. If you would like to discuss GAP insurance coverage further, feel free to call. 1-800-332-1992
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Articles on this site are not binding legal advice and are being provided for educational purposes only. Laws change constantly, so articles on this site should not be relied on when making legal decisions. For the most current information, please contact our office.