Preventing The Insurance Time Bomb From Detonating

By Author: Marcus Stalder
Total Articles: 491
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Driving a brand new car off the dealer's parking lot is definitely a sensation most car owners are proud of. But little do they know that in this very moment they turn on a little cost time bomb that could result in serious expenses later on. Any insurance and finance expert will tell you that a brand new car starts to depreciate the moment you drive it from the dealer's premise and within the first year its market value decrease by up to 30% percent. And this could result in serious financial loss if you end up in a serious accident within this first year.

If you're purchasing a car through a loan things can even messier. For example, you've paid $20k for a brand new car and after having it for a year destroy it in a serious accident that you weren't the cause at. Your insurance policy will only pay $14k because it takes the actual market value into account that has already decreased due to the depreciation. And guess at whose door the lending company will end up knocking for the outstanding balance on your auto loan? Yes, it may seem unfair, but it's only in case you have standard auto insurance policy. Fortunately, ...
... there's an effective way to eliminate such unpleasant financial risks - gap insurance.

Gap insurance is an additional type of insurance coverage you may include as a weaver to your standard policy or purchase as a separate policy. What it does is abbreviated in the name - it covers the gap between the actual market value of your vehicle in the amount you owe for it if there's a difference between the two values.

Insurance specialists suggest that this type of insurance is a must have for all car owners who have used an auto loan to make the purchase. This way it's possible to avoid such unpleasant financial situations as mentioned above. But you have to be quick in order to benefit from this coverage. Gap insurance should be purchased together with the standard car insurance policy since there's usually a time limit for this. The period of time may differ, however with most companies you have only three months after the car has been purchased in order to include gap coverage to the policy.

But be careful where you buy gap insurance from. Not all auto insurance companies offer gap insurance and you'll be forced to either purchase it from a different provider or switch to another provider altogether in order to get it within a single policy. The latter is always better since it will considerably reduce the paperwork and hassle in case if you have to file a claim. And what you want with this coverage is adequate protection for your new investment with reliable customer support.

Gap coverage can also be purchased directly from the dealer or the lending institution. But insurance experts recommend that you avoid this option since it will costly considerably more than at a typical insurance company. The usual cost of gap insurance coverage is around 7% of the collision and comprehensive cost within your policy, so this should be a good reference for comparing the rates you are offer by an insurance company and the auto dealer.