By purchasing gap insurance, the financial burden on the depreciating value of cars can be resolved. A new car’s value decreases by the time you drive it off of the dealer’s lot, and can actually be reduced by 30% during its first year of ownership.
The decrease in the value of new cars can lead to a huge financial burden, as you can end up having a debt on your car loan that is larger than the actual worth of the car. Should you be involved in an accident or your new car was stolen, this could lead to an even bigger financial trouble. This gap between the actual car value and the car loan can be expensive.
As a solution to the gap that was identified, purchasing “gap insurance” can address that, wherein it fills the void that was created. According to Kevin M. Lynch who is an insurance assistant professor at The American College in Bryn Mawr, the gap insurance should be considered by those who have larger debts for their new cars. An estimate for the value of the new car can be made through checking out with the prices of similar vehicles in local car dealerships or through organizations like the National Automobile Dealers Association.
To check on the availability of gap insurance, the best way is for you to inquire with your insurance agent. There are some companies that do not offer this type of insurance though so it is important to check with them first before making your purchase final. If it is not offered, going to another company that has this product is advisable.
For some companies, they offer new-car replacement insurance making it seem like it is unnecessary to have gap insurance. However, this insurance product is just for purchasing a new car, and not for filling the void on the car loan and actual car value.