Clark, Perdue & List's Blog

If you are thinking about financing most of the purchase price of your next car or motor vehicle, you should consider purchasing “gap” or “guaranteed asset protection” insurance. According to www.GapInsuranceQuoates.com, it is available in all states except CT, LA, NH, NM, NY, VA, VT and WA, often from the dealership.

Why invest in gap insurance? It is almost common knowledge that a new vehicle depreciates in value the moment it is driven off the dealer's lot-sometimes by as much as 20%. If you finance a car with less than 20% down and you are subsequently involved in an accident that totals it, or if it is stolen, you may find yourself owing your lender more than the car is worth. This is called being “upside down on a loan” - an insurance company pays you X dollars for your car, but you owe the bank X dollars plus several hundred or even several thousand dollars!

In the past, loans were usually made for a 24 or 36-month period. Because the price of cars has risen greatly since the early 1980's, 60 and even 72-month loans are now common. However, the longer the loan, the longer it takes to reach a positive equity position in a car, where the borrower owes less than the car is worth. In fact, a borrower may well remain “upside down on a loan” for as long as two to four years, depending upon its length and the amount that was paid down. If your car happens to be totaled or stolen at such a time, your insurance company will not be obligated to pay you what you owe on the car, but only its actual market value-what it could have been sold for at the time of the wreck or theft. Your lender, however, will expect to be paid the difference.

That is where gap insurance comes into play. It covers the “gap” or difference between the vehicle's actual worth and what you still owe on the loan. www.Auto-Insurance-Options.us reports that aside from collision and comprehensive coverage, some leasing companies and lenders now require you to purchase gap insurance. Leasing companies typically include the cost of the insurance in the price of the lease agreement. And, while gap insurance is most often only available through a dealership at the time of purchase, some companies now offer the coverage in less than conventional situations, such as for used and refinanced vehicles. Further information on gap insurance is available at these, as well as other numerous websites: www.intellichoice.com, www.cars-insured.net, and www.bmv.ohio.gov/bmv.asp,