Cars and Depreciation: Why You Need Gap Insurance

According to the Federal Reserve Bank of New York, 107 million Americans have auto loans, which means that 43% of Americans owe money on their vehicles. This can be dangerous considering that cars depreciate so quickly and leave car owners upside down in their loans. If you owe more on your car loan than your car is worth, you’re certainly not alone, and gap insurance can help.

What You Should Know About Car Depreciation

If you buy a brand new car, it loses up to 30% of its total value the instant you drive it off the sales lot. This loss of value doesn’t stop, either. As of 2017, the average rate of depreciation of a vehicle between years two to six was 17.6%. Even if you buy a used car to avoid that initial 30% loss in value, you’re not shielded from depreciation in the future.

Why Depreciation Hits You Where It Hurts

If your car is totaled in an accident or stolen, your car insurance will not cover the amount of your loan or original car purchase price. Instead, it will only cover the value of your car at the time that it was damaged or stolen. If you owe $11,000 on your auto loan, but your car insurance only pays out a $6,000 value, you are in $5,000 worth of trouble.

How Does Gap Insurance Help?

Gap insurance is a supplemental insurance that increases the payout you receive from comprehensive or collision coverage in the case of your car being stolen or totaled. Some gap insurance plans even cover your insurance deductible!

If you can identify with any of the following situations, gap insurance will benefit your financial wellbeing:

  • You financed a car with a high rate of depreciation
  • You have financed your vehicle for more than 4 years
  • Your vehicle down payment was less than 20%
  • You drive more than 15,000 miles annually
  • You are a single car family

If you want to protect yourself from a potentially serious financial hardship in the future, consider gap insurance today. The insurance experts at Tampa Bay Insurance can help you find the best policy for your needs. Call (727) 372-5559 to get started.

Note: Coverage examples and descriptions are not absolute and are for informational are sample purposes only. Please refer to your policy for specific coverages and exclusions.

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