Anyone who has ever owned a car knows what auto insurance is. In today’s day, you go online (or simply download an app) and look for what kind of car insurance best fits the type of vehicle and your budget. It is an extremely simple process. The same thing goes for motorcycles, boats, and various other types of niche automotive equipment as well. Lets focus on automobiles though. When you go to purchase a car, the two ways to finance this purchase are: 1) pay for the entire cost of the car when you make the purchase 2) you can give the dealership a portion of the cost of the vehicle (this is called a down payment) and pay the rest to them over the course of a few years (called a loan). The center of this article is the car loan.
Depending on the amount of money that you put down to purchase your car, you could owe the dealership more money than you actually put down. For example, you buy a car for $10,000. You give the dealership $1,000, meaning that you have a loan of $9,000 (10-1=9). Why is this important? Your insurance covers your car at its market value. If the car was somehow totaled (meaning that it cannot be repaired based on an accident and they scrap it for parts), due to the value of an automobile depreciating so rapidly, the value of the car could be less than $9,000 that you owe the dealership. This leaves you in a quandary.
Gap insurance covers the difference between what a vehicle is currently worth (which your insurance will pay) and the amount you actually owe on it. A nifty little tool that can help ‘bridge the gap’ in differing values.
Some words of advice: try and put down as much money as you can when you purchase your next vehicle. This will eliminate the need for gap insurance as you own more of the vehicle than you owe. Save up a little longer, cut down some silly expenses, and put down more on the car. Final advice, make your deductible payment as low as possible, typically $500. You can be the world’s greatest driver but if someone taps your car, it can cause damage. It is not worth it to you to pay more than the $500 to fix it just because you decided to save $12 a month for the past two years. The local team at Winstead Insurance in Elkton, MD is here to help answer any of your insurance questions. We have a wealth of knowledge and the expertise to handle any of your insurance challenges. Give us a call today or visit our quote page for a free quote https://www.winsteadinsurance.com/get-a-quote/.
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