New Car? Make Sure You Have Gap Insurance

Just bought a new car? What if an accident occurred soon after taking your brand new ride off the lot? You have full coverage insurance, right? So, you're covered... or maybe not.

When you drive your new car off the lot the value of your vehicle plummets, sometimes as much as 20%-30%. Say for instance you pay $25,000 for your new vehicle and have an accident a month later. You probably have only made at the most one payment and if you did not put any money down your loan amount is still close to the $25,000 purchase price. Unfortunately, even with full coverage, which includes comprehensive and collision, you will only receive the market value of your vehicle which could be as much as 20%-30% lower than the purchase price. That means you may be stuck paying that 20%-30%. On a $25,000 car, just a 20% depreciation would be $5,000! That amount could be more if you financed your taxes and license into your loan.

Fortunately, you may already have Gap insurance with your current insurer, which would insure you for the difference between your loan amount on the car and the actual market value of the car. But, not all insurance companies offer Gap insurance.

Gap Insurance Requirements and Your Rights

Gap insurance is a common purchase for new car loans and lease agreements. Gap insurance is a great type of insurance that has helped many people not incur extra expenses when their vehicle was totaled. But, as with any insurance, gap insurance is not always needed. Unfortunately many consumers don't know their rights and often end up purchasing and paying for gap insurance without knowing and maybe without needing it.

Gap Insurance Requirements

First, let's take a look at when gap insurance is required. Generally every lease agreement requires gap insurance, and for the right reasons because this is a great protection for the buyer. The buyer is still financially responsible for the leased car even though the car is still owned by the manufacturer or dealership. Usually gap insurance is built into the lease agreement and is part of the lease terms.

Consumer Rights

Other than lease agreements, generally gap insurance is not required. But for reasons of ignorance or greed, many dealerships or car loan departments often automatically add gap insurance to the buyers loan and sometimes without the buyer being aware of this. When purchasing a new car you do have the right to deny gap insurance. Before you deny gap insurance though, make sure you don't need it.

When Gap Insurance is Not Needed

Although gap insurance is highly recommended in many new car purchases, in some cases gap insurance is not needed. If someone has enough cash reserves to cover the gap in the insurance payoff and the value of their car, then they would not need gap insurance if they would rather use their money than insurance to cover that gap. Also, some insurance companies already provide gap insurance, or a similar loan pay off type of insurance, built into the vehicle's auto insurance policy, so obviously it would make no sense to pay for an insurance policy that one would already have. And, some loan companies offer a pay off benefit in the loan agreement. This means that the loan company will take care of the gap in value. In addition, some people may be purchasing a vehicle that is not over priced and therefore if the car was totaled, the vehicle would have the same value as the loan payoff.

How to Refuse Gap Insurance

So, you are not leasing a vehicle and you have researched your need for gap insurance and realize you don't want to purchase it. Tell your dealership or lender. That is all you should need to do to refuse gap insurance. Next, before you sign your loan papers, make sure you get an itemized list of everything that is included in your loan payment and make sure you are not paying for gap insurance or anything else that you did not authorize. If you still have problems, since gap insurance is a form of insurance and its sale is regulated by your state, you can contact your state insurance commissioner for further help in securing your rights to refuse gap insurance.