When it comes to Springfield, Ohio auto insurance there are a number of optional coverage additions that give you greater coverage in specific situations that may apply to you. One of these options is gap insurance.
Gap insurance helps you pay off your auto loan if your car is totaled or stolen and you owe more than the car’s depreciated value. This coverage could benefit you if you are the original loan or leaseholder on a new vehicle.
Gap insurance helps you pay the gap between the depreciated value of your car and what you still owe on the car.
What is Depreciated Value?
Depreciation is the loss in value that naturally occurs as an object is put to use or ages. The total depreciated value of an item is the value of that item once you take depreciation into consideration.
As a car is driven it slowly starts to lose value. Cars don’t keep their value as they accumulate miles and everyday wear and tear on the road.
For this reason, it is possible that your car could be worth less (depending on how much the car has depreciated) than you are paying for it through a car loan.
This is not a fun spot to be in because you are essentially paying for more than your car is worth. And what if your car is totaled?
This is Where Gap Insurance Comes in.
Here’s an example of how gap insurance may work: Say you bought a brand-new car for $25,000. You still owe $20,000 on your auto loan when the car is totaled in a covered collision. Your collision coverage would pay your lender up to the totaled car’s depreciated value — say it’s worth $19,000. If you don’t have gap insurance, you would have to pay $1,000 out of your own pocket to settle your auto loan on the totaled car. If you have gap insurance, your insurer would help pay the $1,000.
Do You Need Gap Insurance?
This type of coverage may only be available if you’re leasing or financing a new vehicle. To decide if it’s right for you we will look at how much you owe on your auto loan versus the value of your car. Do you owe more than your car is worth? Could you afford to pay the difference out of pocket if your car is totaled?
You may want to consider gap insurance in the following situations:
- If you made less than a 20 percent down payment on your vehicle
- If your auto loan is 60 months or longer
- If you’re leasing a vehicle.
As experienced independent Insurance agents, our team at Link-Hellmuth Insurance can help you assess your auto insurance needs. For some gap insurance will be beneficial but to others, it won’t be necessary.