Stuart F. Cubbon
Your car or truck is one of your most expensive and needed assets. When you purchase or lease a new, or even used vehicle, rapid depreciation in the first years of ownership may result in a situation where you owe more than the vehicle is worth. If you then have an accident where your vehicle is totaled out, or if it is stolen, your own automobile collision or comprehensive coverage should reimburse you for the value of the vehicle at that time. But if you owe more for your car than it is worth at that time, there will be a gap in coverage.
For example, let’s assume you purchase a vehicle on January 1st and take out a $20,000 loan payable over five years. On June 1st the vehicle is totaled. Based on rapid depreciation it is then worth $17,000 but you owe $19,000 on the vehicle. You will be reimbursed $17,000 (less your deductible) but this leaves a $2,000 gap.
If at the time you purchased or leased, you took out gap insurance, that coverage will pay the $2,000 difference so that you walk away from the vehicle owing nothing further.
People who put a substantial amount of cash down at the time of purchase may not need gap insurance, because they will never owe more than the vehicle is worth. If you purchase or lease a vehicle, however, without a substantial down payment, you will be happy to have gap insurance if a total loss situation occurs.
You should make certain you understand the significance of accepting or denying gap insurance at the time you purchase. Please discuss this with your insurance agent and feel free to contact our office to review as well.