By Catherine Powell
|Image courtesy Pixabay|
If you're in the market for a new car that you plan on financing, you'd be well advised to touch base with your insurance agent before you sign on the dotted line. That's because you may want to look into adding gap insurance onto your existing auto policy before you drive any new car off the lot. Whether you realize it or not, the moment you drive a new vehicle away from the showroom it depreciates significantly. Should your shiny new ride get totaled in an accident, catch fire, or get stolen in the first couple years of ownership, you may be in for a rude awakening when it comes to the check your insurance agency will issue for a total loss. Instead of providing you with the amount to buy a new car of the same make or model, you'll wind up receiving the current value of the vehicle minus depreciation and your deductible.
How much depreciation does a new car experience?
- As soon as you drive it off the lot it loses an average of 10% of its value.
- In the first year, many makes and models lose around 20% of their value.
- After two years, most makes and models lose up to 31% of their value.
- Three years reduces a vehicle's value to 58% of its value.
|Image courtesy Pixabay|
- Down payments
- Overdue loan or lease payments
- Costs for extended warranties
- Roll-over amounts from previous loans or leases
- Penalties for excessive mileage on a leased vehicle
- Security deposits
- Aftermarket equipment added to the vehicle by the owner
- Mechanical issues not covered under warranty
- Damage caused to property of a third-party
- Medical expenses
- If you lease a car, the leasing company may automatically include gap insurance in the price of the lease. Check the leasing agreement to determine if this is the case.
- If you finance your vehicle, your lender may require you to have gap insurance along with collision and comprehensive coverage. A quick call or text to your insurance agent can help you determine if gap insurance is included in your current coverage.
- Your vehicle needs to be no more than 2-3 years old.
- You may add gap insurance at the dealer when you purchase a new car, although this is usually more expensive than adding it to your existing policy.
- You can add gap coverage to your existing auto policy by contacting your agent.
- Dealers typically charge $500-$700 for three years of gap coverage.
- Insurance companies usually charge $20-$40/year for gap coverage.
- New-car replacement coverage pays for a new car of the same make and model you currently own, minus the deductible.
- Better-car replacement coverage won't give you what you need to buy a new model of the same car you currently drive, but it will give you enough to buy a newer model with less mileage than a standard auto policy without gap coverage.