Owning a new car is something that is taken in stride by some people, while others consider it the dream of a lifetime to have a brand new vehicle that belongs to them. Either way, it is rare to be able to pay cash for that vehicle, so most people must borrow the money. An important thing to consider when you buy a new car is that its value goes down as soon as you drive it off the lot. If you only put down a little bit of money, then the car isn’t worth what you owe on it from the moment you sign the papers. If you get into an accident or the car is stolen before you make up the difference, you won’t get enough from your insurance company to pay for the car. As a result, most lenders insist that you carry gap insurance to ensure they receive repayment of the loan. Following are a few tips on how to save on gap insurance.
Gap Insurance–What Is It?
The GAP in gap insurance stands for Guaranteed Auto Protection. It is a type of insurance that will protect the lender against loss if your new car is damaged or stolen during the time in which you owe more than the vehicle is actually worth. Gap insurance covers this ‘gap.’ It’s important to carry gap insurance because not only does your vehicle lose value as soon as you drive it off the dealer’s lot, it continues to diminish in value for the next few months. In most cases, your vehicle is worth up to 30% less than you paid for it after a few months have passed–which makes gap insurance a good thing to have.
Owing more on your vehicle than it is worth is called being upside down on the loan. Gap insurance will make up the difference if something happens to the car before you catch up. Paying ahead on your loan so you can reach the point where you owe less than the car is worth would allow you to drop your gap insurance coverage, thereby saving a few bucks.
Until you’re able to pay your loan down, you should carry gap insurance–in fact, most lenders require you to have gap coverage so they’ll be protected. As with buying any type of insurance, purchasing a gap insurance policy can be as easy as calling the first insurance company listed in the phone book and paying for a policy. However, it would be best to shop around for the best deal you can get before actually agreeing on gap coverage. The best place to start is to go online and search the Internet for insurance companies that offer gap coverage. Visit their websites and fill out their online forms to get a quote. Once you’ve done this with a few companies, you should then start calling brick and mortar insurance companies, using the online quotes for comparison. Gap insurance is generally not too expensive, but it never hurts to save a little money by getting the best rate possible. After you’ve considered all the quotes you’ve received, both from online and the more traditional insurance carriers, you should visit your present insurer, if you already do business with one. If you’ve been with the same company for a long time, and have multiple policies with them they will probably be willing and able to meet or beat the best quote you received. Most insurance companies reward longtime customer with significant discounts for loyalty.
Gap Insurance through a Dealer
Although gap insurance is usually reasonably priced, you may not be able to find a carrier that will offer you a good rate. In that event you have another option–buying a stand-alone policy through the car dealer. The downside to this is that a stand-alone policy is usually expensive, so even if the quotes from the insurance companies seem high to you, they may still be the most reasonably priced option. Some car dealers will tell you that you need to buy gap insurance immediately, before you drive the car off the lot in order to be fully protected–which isn’t entirely true. While it’s true that you won’t be protected in the interim, you can buy the car, drive it home, and then contact an insurance company and buy a gap policy, which will probably be cheaper than if you bought it through the dealer.
Guest post from Sasha Bell. Sasha writes for CarInsurance.net.