It’s safe to say that there is nothing quite like a new car – that new car smell, the purring engine, and the latest tech at your fingertips. But beneath that initial excitement, there is something that we often forget to consider straight off the bat – depreciation.
The sad thing about having a new car is that while you’re diligently making your monthly payments, your car is steadily losing its value. In fact, a significant portion of a car’s depreciation happens within the first few years of ownership, and the risk that lies with this can be costly should something happen to your car.
If your car is involved in an accident and declared a total loss, your standard comprehensive or collision insurance will typically only pay out the current market value of the vehicle, i.e., what it’s worth at the time of the accident.
Here’s where the hidden danger of depreciation rears its ugly head. Because your car has already depreciated significantly, the insurance payout might be considerably less than the outstanding balance on your car loan.
Suddenly, you’re facing a financial nightmare: no car, and you still owe a substantial amount of money to the lender. How do you bridge that gap?
GAP insurance
This is precisely where Guaranteed Asset Protection (GAP) insurance steps in to save the day (and your wallet). GAP insurance is specifically designed to cover the difference between your car’s actual cash value (what your standard insurance pays) and the amount you still owe on your loan or lease. Bargain, right?
Think of it as a financial shield against the rapid depreciation that new vehicles experience. For a relatively small cost, GAP insurance provides that much-needed peace of mind, knowing that if your car is totalled or stolen, you won’t be left footing the bill for a loan on a vehicle you no longer have.
Here’s how GAP insurance helps you avoid the depreciation trap:
- Covers the “gap”: It pays the difference between the insurance settlement and your outstanding loan balance (minus any deductible).
- Financial security: It prevents you from being stuck in a negative equity situation.
- Peace of mind: You can drive with the confidence that you’re protected against a significant financial loss.
Is GAP insurance right for you?
The short answer to this is yes! But GAP insurance is also particularly beneficial for:
- New car buyers: New vehicles experience the steepest depreciation in the early years.
- Those with long-term financing: The longer your loan term, the greater the potential for a significant gap.
- Individuals who made a small down payment: A smaller down payment means a larger loan balance to begin with.
- Lessee: GAP insurance is often included or strongly recommended in lease agreements.
Don’t let the hidden danger of depreciation catch you off guard. While it’s easy to focus on the excitement of a new car, understanding the financial implications of depreciation and considering the protection offered by GAP insurance is a smart and responsible move.
It’s a small investment that can provide significant financial security down the road, ensuring that an unfortunate event doesn’t leave you in a deep financial hole. Contact Protect Your Family for more information on buying the best GAP insurance for you!
