While buying or leasing a car, has your auto dealership ever asked you if you want to buy gap insurance? Insurance from a dealership? Is that for real or one of the zillion other add-ons they might be trying to take you for a ride on. (no pun intended) It's very real and fairly inexpensive, so lets take a closer look.
I assume it's common knowledge that the moment you drive a new car off the lot it is instantly worth less than what you paid it for. Or at least that's how the saying goes. In reality your fair market value (ie KBB, Edmunds, etc...) is less than what you are typically paying for your vehicle, at least a little bit, and it continues to drop at a quicker rate than your ability to pay off the loan or lease. The "gap" is the difference in value and the money owed on a loan or lease. This gap typically last two or three years but can last longer, depending on the type of vehicle and loan or lease. In this scenario if you total your vehicle, you may receive a market value insurance payment that is less that you owe to pay off the vehicle. Nobody likes paying money on a vehicle they no longer own. Therefore, Gap insurance is intended to make you whole.
Gap insurance can typically only be purchased at the beginning of a loan or lease and cannot usually be added mid term. (insurance company rules vary) Insurance companies typically charge between $5 and $20 per year for this coverage while your dealership may charge much more. So, the next time you are in the market for a new vehicle, please contact your BIG Agent for additional details.