When you buy or lease a new car or truck, the vehicle starts to depreciate when it leaves the car lot. In fact, most cars lose 20 percent of their value within one year. Standard auto insurance policies cover the depreciated value; in other words, insurance pays the vehicle’s current market value. If you finance the purchase of a new car and only put down a small deposit, the loan amount may exceed the market value of the vehicle in its early years of ownership. Gap insurance is available to cover the “gap” between what a vehicle is worth and what you owe on it.
It’s a good idea to consider buying gap insurance for your new car or truck purchase if you:
- Made less than a 20 percent down payment.
- Financed for 60 months or longer.
- Leased the vehicle.
- Purchased a vehicle that depreciates faster than the average.
- Rolled over negative equity from an old car loan into the new loan.
While the car dealer may offer to sell you gap insurance on your new vehicle, most car insurers offer it—and it typically costs much less. Most auto insurance policies, including gap insurance with collision and comprehensive coverage, add only about $20 a year to the annual premium.