Car Buying 101: Gap Insurance
Upgrading from your old clunker to a new car is one of life’s greatest joys – that new car smell, the gas pedal under your foot…It’s a nice feeling. But buying a new car entails more than just being able to make your monthly payment, you need to be able to afford the likely increase in your insurance premium.
A lot of drivers with older vehicles don’t carry comprehensive and collision insurance. Instead, they carry liability only. And we get it; it doesn’t make sense to carry comprehensive and collision on your old jalopy if one ding is going to total the whole thing. But with a new car, your auto insurance requirements are different.
If you finance a new vehicle you must carry full coverage. Not only that, but as you are sure to already know, a new car or truck immediately begins to depreciate once you drive it off the lot. Often times, a vehicle will depreciate faster than you can get your loan paid off. When that happens, if you are involved in an auto accident, and your vehicle is totaled, you will not be reimbursed the full amount necessary to pay off what you’ve borrow. Then you’re stuck paying the bill for a car you can’t even drive!
Thank goodness for gap insurance, right? If you have the foresight to purchase gap insurance, then even if you owe more than the car is worth, and you suffer a total loss, this insurance will cover the difference.
So when should you buy gap insurance?
- If you put down less than 20% of the purchase price
- The vehicle has been leased
- Your financing terms extend 60 months or more
- You’ve rolled over negative equity
- The vehicle type has a history of depreciating faster than average
- Call Texan Insurance before you buy your next car!