Should you Buy Car Gap Insurance?

You buy a house, and unless the housing market has just cratered, traditionally, you have always been able to expect that the prices would go up. That's a good investment. Buy a car though, and that's a bad investment it loses 10% the moment you drive it off the dealership. It isn't just new cars either. Its the same story with used cars as well. So if you're financing your car, you can be pretty sure that five years or so down the line, your car is going to be worth less than what you still owe on it. There's something you can do about being underwater on your car it's called car gap insurance.

Should it really bother you if you're upside down on your car? Well, if there is a car crash and your cars wrecked, you'll suddenly find yourself in a very unpleasant situation, financially speaking. Your insurance company is not going to pay you very much for your car, but your car loan people are still going to be asking you for a lot of money. How do you bridge this difference? Well, that's what car gap insurance is for. If you happen to be in this situation, they'll pay the difference.

Let's say that you buy a car that's worth $25,000, and you pay $2000 down. Of course, the moment you drive it off, your insurance companys only going to value it at $20,000. Let's say that three months later, your car is totaled because an Acme safe fell on it when it was parked on the street. Of course, your insurance company is going to give you the $20,000. But what about the $3000 you still owe the car finance people and $2000 you paid down in cash? Basically, you're in the same position you were before you bought the car, except that you're out $5000 now. Get car gap insurance, and they'll pay for the $3000.

How do you know that you need car gap insurance? Is it for everyone? Well, it's for certain kinds of people. It's for you if you have a finance plan for your car that gets your car to depreciate very quickly.

If your car loan runs to five years or more, gap insurance is going to protect you if your car is totaled. It would not make much sense if you paid a lot down. If you don't owe the car finance people much, you really don't have to bother with car gap insurance.

And finally, if you just have the one car for your whole family, you really cannot afford to be without a car for even a day. Car gap insurance would make a lot of sense here.

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