GAP Insurance

Let’s talk gap insurance. That weird insurance no one has ever heard of that you are generally offered when you buy a new car. It’s the insurance you buy that covers the difference in value between purchase price and fair market value on your car. For example, you buy a new car for $25,000. Probably financed. Zero down, 5% interest. 6 months later, you are hit by another car, and your new car is totaled. You still owe $23,000 on the bank loan. Fair market value is only $21,000. $21,000 is what the other guy’s insurance company is required to pay (or yours, subject to your deductible). You owe the bank $2,000 on a car that’s in the junkyard. The solution to this problem is to buy gap insurance. In all my years of practice, I’ve only seen a handful of people with this coverage, but thankfully it’s becoming more common, especially as the cost of new cars has gone up. Should you buy it? Your call. If I was buying an expensive brand new car, and the cost wasn’t completely out there, I’d definitely consider it. If you’re leasing a car, you might even be required to purchase it as part of your purchase. Usually the utility of GAP coverage will run its course within the first 2-3 years after buying a new car, so it’s a cost you can either cancel when you don’t need it anymore, or sometimes they will only cover a term like the 3 year lease term. But always make sure you understand your insurance coverage, no matter what type of insurance we’re talking about!  Happy car shopping!