Gap Insurance Crofton MD

Before you do anything else, you must answer the question, “What is gap insurance?” If you have never financed a vehicle in the past, you may not be familiar with this essential product and what it can do for you. It is by no means a frivolous expense when you are purchasing a new vehicle on credit. What gap insurance does is protect you from having to continue payments on a vehicle that is no longer in your possession due to theft or an accident. That leaves you free to purchase a new vehicle without being obligated to pay off the previous loan, or add it to the cost of a new one.

The value of a car drops so quickly that you are playing devil’s advocate to even consider leaving the dealer’s lot without purchasing gap insurance. Even if you make a substantial down payment, there is a good possibility that if you are involved in an accident or someone steals your vehicle, the insurance will not cover the entire balance you owe on it. When you owe on a vehicle, you will have to pay any deficiencies the insurance company doesn’t cover—this is where gap insurance plays an essential part. Gap insurance will cover the balance of the loan remaining after the auto insurance pays its part.

Do not think for a moment that you can live without gap insurance when you owe on a vehicle. You may think you paid a substantial down payment that will always leave your loan balance less than the book value of your vehicle, but that depends on many different factors such as the length of the loan, how well the vehicle you purchase retains its book value, and how well you maintain your vehicle. Unlike your home, your vehicle will lose value over time, no matter how well you maintain it. Luxury vehicles may retain a higher value, but they will still lose value as time passes.

Most people cannot afford to buy a new vehicle and pay off a deficiency balance on one that has been totaled in an accident or stolen. You must keep in mind that even with insurance, you will also receive the book value unless you pay additional premiums that some carriers offer for replacement value. That means you stand a good chance of having a balance on your vehicle after the insurance has settled your claim. If you elected to pay for gap insurance when you bought your vehicle, any remaining balance on your loan will be covered by the insurance. Unlike insurance, it will not cover a set amount, thus if there is no deficiency balance after insurance, there will be nothing for the gap insurance to pay.

When you are trying to budget the payments for your new vehicle, you may question the feasibility of purchasing gap insurance. How much is it going to raise your payments and is it worth the cost? If you have never had an accident involving a total loss or had your vehicle stolen, you may be thinking you can do without the additional cost of gap insurance. The trouble with that type of thinking is in the fact that one can go years and never have an accident or had his or her car stolen and things change.

The cost of gap insurance is minimal when you consider the repercussions that you will encounter if you find yourself in a situation where you need it. After purchasing a new vehicle, there is no adding the gap insurance later. Although some dealers may allow you a time frame where you can add the gap insurance, you will need to pay cash for it just as you do extended warranties if you choose to make the purchase after the contract is submitted to the bank. You would not purchase a home without homeowners’ insurance, nor should you purchase a new vehicle without both automobile insurance and gap insurance. You are taking a chance with your financial well-being if you fail to purchase gap insurance.