Many people believe that if their car is judged to be a total loss in an accident, their insurance will cover the full replacement cost. In fact, most policies will cover what is known as the fair market value of a vehicle. A New London Connecticut auto insurance agent can offer supplemental Guaranteed Auto Protection, or Gap insurance, to make up the difference between the fair market value of your auto and the balance of your car loan.
Facts About Depreciation
Depreciation is the loss in value of your auto over time. Estimates of the rate of depreciation include:
- 11% lower value right off the lot
- 15% to 25% lower value every year
This could mean that an automobile is worth 37% of its original purchase price at the end of five years.
At the same time, you may still owe more than 37% of the purchase price on your car loan.
In this light, Gap insurance makes particular sense when you are looking for coverage for a new or expensive automobile. Also, the smaller the down payment you make on an auto, the more relevant Gap insurance becomes.
Gap insurance is frequently required as part of a lease contract, as many leases involve cars of higher value and have shorter terms than many auto loans.
A New London Connecticut auto insurance agent can help you design the policy that works for your situation, and help you decide if Gap coverage should be part of your insurance plan.