Can you really buy a new car, drive it off the lot and then total it in an accident on your way home? Sure. Accidents are totally unpredictable and I’m sure there are people out there who have had this situation happen to them. I think gap insurance is definitely something you should read up on and consider getting if you’re in the market for a new car.
When I bought my car almost five years ago, I didn’t purchase gap insurance with it. In fact, I’ve never heard of it until recently when I read an article about it. I asked some of my family and friends if they’ve ever heard of gap insurance and found that they are in the same boat as me.
Why isn’t gap insurance more widely known? I listened to a radio show over the weekend where people can call in and ask questions to an automotive expert. A listener called in and asked about gap insurance and whether or not it was necessary on a new car he was thinking about buying.
The radio host told the caller that he recommended gap insurance on the purchase of a new vehicle 100%. He even went on to say that the buyer would be crazy not to get it. Keep in mind that gap insurance is usually only offered at the time of purchase on a new vehicle. Once you buy that new car, you probably won’t be able to get the insurance afterward.
So what is gap insurance? In layman’s terms, gap insurance will cover the difference between the cash value and the current outstanding balance of the car if it gets totaled or stolen. If you are upside-down with your vehicle, meaning that you owe more on the car than what it is worth, and your car gets totaled in an accident, you would have to pay the difference of what you still owe on the car in full. Gap insurance would cover you and pay that difference in this situation.
Here are some rules to go by from CarInsurance.com when considering if gap insurance is right for you.
- Maximum limit of loss: $50,000
- A GAP claim settlement may not cover the entire gap due, when your loan’s original amount financed exceeds 120% of MSRP (new vehicle) or NADA retail value (used vehicles), plus 30% of value allowable for additional financed items like credit life or service contracts.
- The claim settlement does not cover late charges or other penalties due to your lender.
- Your loan amount financed must be less than or equal to $100,000.
- Your loan term must not be greater than 84 months.
- The loan must not have a balloon payment due at the end of the term.
- The maximum APR is 12.5%