MONDAY, FEBRUARY 15, 2021
 If you’re in a car accident and your car is totaled, you probably assume that your insurance will foot the bill for replacing your car. In some cases, this may be true. In others, though, your insurance policy may only cover the cost of what your car is currently worth. This may leave you having to pay additional costs out-of-pocket to pay back the remainder of a car loan or to purchase the same version of your totaled car. To protect yourself from such a situation, you may want to consider gap insurance.
Guaranteed asset protection, or gap insurance for short, is an optional auto coverage policy that helps you transfer the financial risk if you are involved in an auto accident and you owe more for your vehicle than the amount that it’s worth.
For example, since a new car’s value drops significantly the minute it’s driven off the lot, if you are involved in an accident that totals your vehicle in the first few years you own your vehicle, you may find yourself owing the finance company more than the vehicle’s actual value. Gap insurance provides financial protection for the “gap” between the two amounts.
Is Gap Insurance for Everyone?
Determining whether you need to secure gap insurance can be tricky. It often depends on your unique situation. Consider the following situations:
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New vehicle financing options: If you took advantage of a zero percent down payment deal or put a small amount of money down, or stretched the life of your loan past three years, gap insurance is most likely a good idea. That’s because the vehicle typically depreciates considerably faster than you have paid down the value on your vehicle’s loan.
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Used vehicles: Gap insurance is typically not available for used vehicles. To cover your risk, it’s wise to put down an ample down payment and finance the vehicle for the shortest possible timeframe.
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Leased vehicles: For those who lease a vehicle, gap insurance is considered an essential coverage because typically there is no trade-in and little cash put down to lease the vehicle. Similar to purchasing a vehicle, if the car is a total loss, you will owe the difference between what you have paid and what you owe on the balance of the lease.
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Cost versus benefit: Gap insurance is offered for a nominal fee, which makes it a great value for anyone who finances or leases a new car.
Cost-savings Strategies
Regardless of whether you’ve decided you need gap insurance or not, you’re probably wondering how you can save money on your auto policy. Here are some simple ways to do so:
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Install an anti-theft device on your vehicle.
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Ask about multi-policy discounts.
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Consider raising your deductible.
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Keep up your good driving record.
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Drive less to qualify for a low-mileage discount.
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Drive a car with safety features such as anti-lock brakes and airbags.
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Ask about a safe-driving discount.
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