3 Facts You Need to Know About Gap Insurance
When you purchase a big ticket item, like your car or your home, there is a often a difference between real value and and the amount owed. So you need some kind of insurance to cover that gap. Here is what you need to know about Gap Insurance.
What you need to know about gap insurance
Gap insurance is the additional insurance you get to cover the difference in the value of an asset and the loan amount still owing. To cover the difference, you can purchase gap insurance.
For some people, for example, the money that they still owe on a car or a house exceeds the actual value of their asset. Therefore, should a fire destroy your home, the insurance company pays out to you only the value of your home, which the bank will apply against the debt. With insurance covering only the value and not the debt, you are left without a new home and likely the responsibility for paying off the outstanding debt.
There are certain conditions under which it would be smart to buy gap insurance for when you purchase a new vehicle.
- extended payment duration of 60 months, or longer
- when you lease your vehicle
- when you put less than 20% down
- if your vehicle depreciates more quickly than other vehicles
- your car loan includes negative equity rolled over from your old car loan
Purchase your gap insurance from your car insurance company. It will likely be cheaper, and add on a minimal amount each year to your current vehicle insurance premium. Still have questions or need a quote? Contact Schumacher Insurance.