As many of you know, when you buy a new car the value depreciates quickly. New cars can depreciate 20% the minute you drive it off the lot. (www.safecarguide.com/gui/new/usedcars.htm) Used cars will hold their value more with deprecation averaging between 7%-12%.



v If you purchase a new Chevrolet Tahoe Hybrid for $40,000 and while driving home, another driver runs a stop sign and damages your car. As luck would have it, he is uninsured. (Please see my Las Vegas uninsured motorist blog for more details on this phenomenon.)

This leaves the repairs or replacement to the comprehensive section of your auto policy. If the damage is past a certain ratio to the total value the insurance company will declare a “total loss”. The insurance company will determine the value of your vehicle by averaging out several searches to include; average dealer price, online car sales, newspaper car sales, etc. It would not be surprising for the final reimbursement to be $32,000. The bank will not feel sorry for you. They are going to want $40,000! After putting a deposit down to buy the Tahoe it is going to be tough to cut them another check for $8,000 for a car you can no longer use.



How do you bridge the “gap” between what the insurance company offered and what is owed the bank? You can endorse your current auto policy with “gap” coverage. This endorsement will pay in the event you owe more than the insurance company offers in final settlement. This endorsement should less than $40 depending on the value of the car and the length of your policy.

You can also purchase this “gap” policy at the dealership while finalizing the financing of your new vehicle. The finance manager at the dealership will offer this coverage as he is trained to do so. The problem that arises is this, unless you pay in full for the policy, the cost of the “gap” at the dealership is included into your finance package and you will pay interest on your insurance policy. It is also important to know that credit unions do NOT offer this coverage.

If you purchase from the dealership, this coverage will cost between $500 or more. On the Tahoe you purchased above with a $40,000 price tag you probably have a 6 year note with an average interest rate of between 7.25% and 11.20%. (http://rates.interest.com/icom/rate/auto/step3.asp?params=0,104,NV,41,0,0,0,0,0) Your $500 gap policy has now effectively cost you over $650 for the same coverage you could endorse onto your current policy for under $50!

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(http://www.mycarlady.com/automotive/auto-insurance/auto-insurance-fraud/)