New Car Gap Insurance: How Does It Work?
If you’ve ever bought a new car, you may have heard someone mention “new car gap insurance.” Most leasing companies require it when you lease a new vehicle.
Insurance companies and lenders offer it to customers as a way to protect yourself from unnecessary out of pocket costs if your vehicle is totaled or stolen. Here we’ll explain exactly what gap auto insurance coverage is, who needs it, and how it is used, and how to find the best new car gap insurance coverage.
How Does New Car Gap Insurance Work?
Gap auto insurance covers the difference between what you owe on your car and what it is worth at the time of a total loss or theft.
When you lease or make payments on a brand new car, the manufacturer or the leasing company still technically owns your vehicle. Because of this, you could owe a sizable chunk of money if your car is totaled in an accident and the insurance company gives you less money than you still owe on the car.
This happens more often than you might think, and the unlucky people who didn’t purchase new car gap insurance coverage end up kicking themselves for not paying a little extra for this very important coverage.
Who Needs It?
Anyone who buys or leases a brand new car should consider buying gap auto insurance. Especially those who lease a car or those who used a smaller down payment to buy a new vehicle.
This is why it’s often referred to as “new car gap insurance.” Cars are known for depreciating faster than other assets. It’s estimated that most brand new cars lose 20% of their value as soon as they are driven off the dealership’s lot.
If your car gets totaled shortly after you buy it, the actual cash value you receive from your insurance company might not be enough to pay your leasing or finance company the difference in what you still owe on the vehicle. That kind of out-of-pocket cost can hurt, so it’s a good idea to ask about gap auto insurance.
Real Life Example
Let’s say you buy a new car for $30,000. When you drive it off the lot, it depreciates by 20% or $6,000.
Even before you have a chance to make your first month’s payment, you get into an accident that totals your car. After you pay your $500 collision deductible, your insurance company cuts you a check for $23,500, which is the actual cash value of your car at the time of the accident minus your deductible.
The problem is that you still owe the full amount of the car, $30,000. So, there’s a $6,500 difference that you are responsible for making up.
If you have gap insurance however, you don’t need to worry because your insurance company will cover that cost difference.
Getting A Gap Insurance Quote
Now that you know what it does, you’re probably wondering who sells gap insurance. The easy answer is, lot’s of people.
Purchasing gap insurance is as simple as getting any other kind of car insurance. Many people start out shopping online with direct insurance carriers. Whatever you do, don’t fall for the trap of buying gap insurance from the car dealership.
But the best use of your time and money is to get a gap insurance quote through an independent insurance agent or insurance broker.
You’ll only have to give them your vehicle and drivers information one time, and they’ll be able to find the best new car gap insurance quotes by shopping with multiple carriers.
This makes purchasing gap insurance far quicker and easier for you by not having to give company after company your personal information.
Can I Get A Gap Insurance Quote On Any Type Of Car?
Yes. Remember, gap auto insurance is usually purchased for brand new vehicles, so any auto insurance agent who offers gap insurance should be able to give you a quote. You’ll just need to give them pertinent information about the vehicle you are about to purchase or just bought like:
- Make and model of your new car
- Purchase price
- Date of purchase
- VIN number
So, How Do I Get Started?
If you want to learn more about gap auto insurance or get an auto insurance quote, give us a call at 678-715-9513 or fill out the form below.