"I just bought a new car and financed it. The finance department encouraged me to get loan gap coverage for $500 - $600. I added it to my loan for only a ten dollars a month"
What's the problem?
Total losses on automobile insurance policies are generally settled at actual cash value. Here's the problem. That new car you just drove off the lot. Well - Now, it's used. That usually costs you $5,000 or more in value. Let's say you finance 100% of the purchase price and the auto is in an accident the next day. It is a total loss. The insurance company cuts you a check for actual cash value and you're short the $5,000 you owe for your "new" used car.
What is loan or lease gap coverage?
The gap ($5,000 in the scenario above) is the amount between your loan or lease balance and the actual cash value of the auto. This coverage pays the loan balance off in a total loss, even if it's above actual cash value. We recommend this coverage for all financed new cars or leased vehicles.
This sounds good, why wouldn't I get it at the dealer?
The price for the coverage at the dealer is extremely inflated. That $600 cost that you rolled in to your loan was about $500 more than you should have paid for the life if your loan. And the nice finance guy at the dealership - he just made a $300 commission for selling you this policy.
I need this, where should I get it?
Call your local insurance broker and ask about adding it to your current insurance policy. You'll save money. It's also a great time to review your coverage on your new vehicle!
For More Information See this post. This information is for information of the reader only. Please see your policy for coverage, limits, and loss settlement.