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As many of you know, when you purchase a new car, the value depreciates quickly. New cars can depreciate 20 percent the minute you drive it off the lot according to
In order to explain the reason why GAP insurance should be carried on your vehicle, let’s look at this scenario. You’ve just purchased a new Chevrolet Tahoe Hybrid for $40,000. While driving home, another driver runs a stop sign and damages your car. As luck would have it, he is uninsured. So, that means the repairs to the vehicle or the replacement is left to the comprehensive section of your auto policy.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!
www.safecarguide.com/gui/new/usedcars.htm. Used cars will hold their value more, however, they have an average depreciation that falls between seven and 12 percent.
If the damage is past a certain ratio to the total value, the insurance company will declare a “total loss”. The insurance company determines the value of your vehicle by averaging out several searches that include: average dealer price, online car sales, newspaper car sales, etc. After they’ve completed their search, the insurance company determines the final reimbursement is $32,000- $8,000 less than what you owe! The bank will not feel sorry for you. They are going to want $40,000! Since you’ve already put a substantial deposit down to initially buy the Tahoe, I’m sure you will not be too anxious to write another check for $8,000 for a car you can no longer use!
So the question becomes, how do you bridge the “gap” between what the insurance company offered and what is owed the bank? You endorse your current auto policy with “gap” coverage. This endorsement will pay out in the event you owe more than the insurance company offers in final settlement, and should be 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 is trained to offer this coverage. Are you aware that, 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.
To purchase GAP coverage from the dealership, the average cost is between $500 or more. Using the above example, the Tahoe you purchased with a $40,000 price tag, six-year note and average interest rate of between 7.25 and 11.20 percent, (
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