Do You Need Gap Car Insurance?
Just stop for a second! When you think of term life insurance, the value-decreasing type insurance, consumers buy such a product to cover the money owed on a mortgage, for instance, in the event they die. But if you get into an accident with your auto, do you really need gap car insurance, that is, money to cover whatever is owed on the car?
The reason for this auto coverage is similar to decreasing life insurance, but would it result in coverage auto owners should not be without? I don’t know anybody who likes to pay auto insurance premiums, maybe because they’re usually government-mandated, but that doesn’t mean you don’t want insurance when you need it, like when you need to pay a friend’s or loved one’s medical bills. You’re risking your finances if you roll the dice on car insurance.
So Why Purchase Gap Car Insurance?
You need to take a good look at gap car insurance before purchasing it because it’s not always necessary. Gap coverage covers the difference between the book value and the value your car insurance company pays in the event of an accident, set against how much you have left to pay in monthly premiums. Like your house, you can be underwater on your car payments.
If you bought your car below the MSRP, your book value over the years will keep you above water, probably for the loan term. In other words, if your $45,000 car that you paid $35,000 just 18 months ago is wrecked, the book value will get the vehicle reimbursed completely by your ordinary car insurance.
But if you paid more than the MSRP, like $55,000, you may want to buy gap insurance. After 18 months, the insurance company will pay the book value, say $35,000, but you financed it for $55,000, and you have many payments left to make. In this scenario, it’s a good idea to buy gap insurance.
Then again, who buys above the MSRP? In reality? People do! If the car commands a higher market value and the model’s popular, the car dealer can get customers to pay over the MSRP, and you may have to pay over the MSRP to get your hands on one. That’s true of many luxury and performance model cars. For example, Astin Martins, Bentleys, and Porsche automobiles can command MSRPs above the book value of a vanilla make and model, and who doesn’t want to get their hands on a Porsche?
