When you purchase a vehicle from any of our
Checkered Flag stores, a finance manager will present you with a list of additional coverage options for your new vehicle. Now, there are many reasons you may or may not choose to purchase these options. One thing is for sure. You should at least have basic knowledge about some things before you sign on the line. In my opinion, one of the most important decisions is whether or not to purchase Gap insurance.
Gap insurance
A quick guide: What it is, how it works, and whether it's right for you
By Aaron Gold, About.com GuideGap insurance covers the difference between what the car is worth and what you owe on the car. It comes into play if the car is stolen or totaled (damaged to the point that repair would cost more than the car is worth) while the owner is still making payments.
How gap insurance worksLet's say you buy a new car for $20,000. You put $500 down and your payments are $350 per month. Six months after buying your car, it is involved in an accident and totaled.
Your collision insurance company determines that your six-month-old car is now worth only $16,500. They will pay you that amount (less your collision deductible if the accident is your fault). You've made six monthly payments plus your down payment, for a total of $2,600; you still owe $17,400 on the car. In a case like this, gap insurance would pay the $1,100 difference between what collision insurance covers ($16,500) and what you owe on the car ($17,400). If you did not have gap insurance, the extra $1,100 would come out of your pocket. (Note however, that if your insurance company determines that your deductible applies, that money will come out of your pocket -- gap insurance won't cover it.)
Gap insurance for lessors
In the case of a lease, even though you aren't buying the car outright, you are responsible for the cost of the car if it is stolen or totaled. Because lease payments -- and therefore the amount of money you have tied up in the car -- is significantly lower, the difference between what you have paid and the value of the car can be huge -- therefore gap insurance is much more critical for a lease. In fact, many lease contracts require it.
Gap insurance for buyers
For buyers, gap insurance only makes sense if you expect to be "upside down" on the car (you owe more than it is worth). If you made a low down payment, if you bought a car that depreciates rapidly, if you have a high interest rate or if you rolled over other costs, such as money owed on a trade-in, into your new-car payments, gap insurance makes sense. Most buyers, particularly those who made a healthy down payment, will always be right-side-up on the car, and therefore don't need gap insurance.
Who
should buy gap insurance?
People who are leasing a car or who expect to owe more than the car is worth for a significant amount of time.
Who should not buy gap insurance?
Buyers who have arranged their down and monthly payments so as to ensure that they won't be "upside down" on the car for any significant period of time.
End of article.For more information about Gap insurance, see your salesperson and finance manager at any of our Norfolk and
Virginia Beach car dealerships. Call (757)490-1111 to set up your test drive today.
Article source: [cars.about.com]
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