Whether you buy or lease, it is a very exciting to have a new vehicle. However, as most people know, the moment the vehicle leaves the dealership, it depreciates in value. What does this mean should you be involved in a serious accident soon after getting your new car? It means you may have a gap in coverage...
Many car owners assume that because they have collision and comprehensive coverage on their NH auto insurance policy, that their vehicle is "fully covered" should an accident occur. This may or may not be true as most car insurance policies cover vehicles on an actual cash value basis (meaning depreciation is subtracted from the vehicle's replacement cost.) If the vehicle has depreciated more than you have paid into it, you will be left paying the difference to the financing company.
How Does Gap Loan/Lease Coverage Work if I Purchase My Vehicle?
Say you buy a new car for $28,000 and put down a $1,000 deposit. This leaves a balance of $27,000 to pay over 5 years. A few months later, you swerve to avoid a deer and hit a tree. The insurance company sends out an adjuster who declares your vehicle a total loss (meaning the cost to repair is greater than the vehicle's value). The insurance company sends you a check for $24,000 as this is the actual cash value of the car at the time of loss. Unfortunately, the financing company tells you that you owe $26,000, leaving you $2000 short, plus any deductible. Yikes! Now you are out a car, out $2000 plus the deductible, and need a new deposit for a new car.
Gap insurance (also known as loan/lease insurance) can fill in this gap if purchased when you add the new car onto your insurance policy, or soon there after.
How Does Gap Insurance Work if I Lease My Vehicle?
Loan/lease gap insurance is very important to consider when you lease a vehicle because many people are more concerned about the monthly payment then they are the MSRP (sticker price) or residual value of the car. This can often lead to paying more for a vehicle than you may have otherwise.
As a car insurance policy is a contract between you and the insurance company, it is not relevant to the insurance company the terms of the contract you signed with the financing company. There are many factors that can lead to someone paying more for a vehicle than "its worth" on paper, but without gap coverage, there is no contractual obligation for the insurance company to pay the difference.
How Do I Get Gap Loan/Lease Insurance?
Many car dealerships and financing companies offer loan/lease coverage as part of an add-on to the purchase price of the car. That said, it is suggested that you compare this cost with what your NH car insurance company would charge, as we have seen dealerships charge up to $500 for this coverage, while it may be added onto your personal auto policy for less than $40 a year. (Both the financing company and the car insurance company will use the cost of the vehicle in determining the cost of gap insurance, so the price can vary.)
Talk to an HPM Insurance professional about this valuable coverage and hit the road with your new car and peace of mind. Safe driving!
