Mistake #5: Buying gap coverage from your car dealer, bank, or credit union
Today, we’re going to cover Insurance Mistake #5 in our 10-part series.
As defined by the Insurance Information Institute1, “gap insurance covers the difference between what a vehicle is currently worth (which your standard insurance will pay) and the amount you actually owe on it,” “in the event of an accident in which you’ve badly damaged or totaled your car.”
Typically, insurance agents can provide that coverage for less than 25% of the cost of a car dealer, bank, or credit union. If you purchase a new car and finance the full cost or put very little money down, you definitely need gap coverage. The cost to add the coverage to your auto policy is around $22 to $25 per six months. You will typically only need gap coverage for 3 years or less if you don’t finance for over 72 months. So, the math on it would be:
$50 X 3 years = $150 to have the gap coverage.
A dealer, on the other hand, would typically charge at least $600 for gap coverage. Once you don’t need the gap insurance, you can take it off of your auto policy. Save yourself some money and buy gap coverage through your insurance agent to pay off the difference between the loan and the value of your car in the event of a total loss.
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