Gap Insurance – Do You Need It?

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Gap Insurance – Do You Need It? Posted: 16 Dec 2010 04:00 AM PST Unlike other types of car insurance, gap insurance is not required by law. However, gap insurance may prove to be a good investment if you lease, are underwater on your auto loan, or make a small down payment when buying a car. Photo: alancleaver_2000 What is Gap Insurance? As the name implies, gap insurance fills the “gap” in traditional auto insurance policies. Its primary purpose is to cover the difference between the actual cash value of your vehicle and the current outstanding balance on your loan or lease. For example, let’s say that your vehicle was totaled by an accident, theft, fire, flood, tornado, vandalism, hurricane, or some other type of disaster. If you have a traditional auto insurance policy, your insurance company will pay you for the actual cash value of your vehicle minus the deductible. Unfortunately, the amount you receive may be less than the retail value of the vehicle or the amount you actually owe on the loan or lease. This could leave you without a car and several thousand dollars in debt. But if you have gap insurance, you will be given the same amount by the insurance company plus the amount you need to pay off your auto loan. Some gap insurance policies will also reimburse you for the deductible you paid on your regular policy. Where to Purchase Gap Insurance Gap insurance can be purchased from many different insurance providers. You can call your current agent to get a gap insurance quote. You can also get quotes online direct from insurance companies or though auto insurance comparison sites. The average auto dealership can also help you purchase gap insurance. In fact, some may require it if you are leasing or purchasing a vehicle with very little down. You can choose to purchase gap insurance when you buy your vehicle or opt out at signing and purchase coverage later on. When deciding where to purchase gap insurance, you should get several quotes and compare costs and coverage so that you know you are getting a good deal. Gap insurance is often more expensive when purchased from a car dealer. The price can also change as your car ages and the cost of traditional collision and comprehensive coverage decreases. Most gap insurance policies can be purchased for 5 to 6 percent ($20 to $30 per year) of the annual cost of a traditional comprehensive and collision insurance policy. Should You Buy Gap Insurance? The value of gap insurance is very dependent on your individual situation. Gap insurance is a must if you are leasing. It also makes sense if you are underwater on another loan and transfer the balance to your current loan. Other situations in which gap insurance may be a good investment include no or low money down purchases and purchases made with high interest loans. To determine whether or not you need gap insurance, consider the actual cash value of your vehicle, the amount you owe on your loan, and the cost of gap insurance. Your calculations will provide the answer. Guest post from Bailey Harris. Bailey writes on insurance and related topics for the Car Insurance Blog.

Dollar Matters: Yet Another Holiday Post! Posted: 15 Dec 2010 09:00 AM PST We know that this time of year is all about the holiday posts. From saving to spending, here are some more great holiday posts from around the personal finance web: Last-Minute, Stress-Free Holiday Decorating Wise Bread offers some helpful hints for last minute decorating that is easy — and looks great. The Season of Giving: Buying More than Presents this Holiday Season Quizzle takes a look at some worthy charities that can help you make the most of your donation dollar this holiday season. How To Save 10% (or MORE) on Christmas This Year Faith and Finance takes a look at ways that you can save a little extra on your Christmas expenses this year. Holiday Money: Personal Finance Gift Ideas At the Personal Finance Corner, I offer a look at some financial gifts you can give this year. 8 Strange Gifts to Put on Your Credit Card Credit Cards Canada offers some pretty crazy gifts available. Lucky poo? A squirrel’s foot necklace? Some of the silliest gifts out there. Other Financial Posts Here are a few more posts that can help you improve your financial situation: How to Protect Your Assets at Wealth Pilgrim. 6-Step Analysis of a Grocery Store Receipt at Fiscal Fizzle. The Golden Rules of Haggling at Beating Broke. How to Avoid Student Loan Debt at Moolanomy. How Penny Auctions Work And A Few Tips at Financially Poor. Image source: Zink Dawg via Wikimedia Commons

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