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The Truth Behind Car Dealer Gap Insurance

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The Truth Behind Car Dealer Gap Insurance

When you purchase a vehicle from a car dealership, the sales pitch often includes gap insurance. The reason is that your car loses value the moment you drive it off the lot. In fact, the minute you sign the paperwork, your vehicle goes from being a new car to being a used automobile, and its value immediately decreases.

If you were to have a wreck in that brand-new car, your insurance company probably wouldn’t cover the cost of what you owe on it. They would only cover the cost of replacing your vehicle with one of the same value. This is why you should consider buying gap insurance when you purchase a new car. So what is gap insurance? Also known as guaranteed auto protection insurance, it will cover the difference between your car’s depreciated value and what you actually owe on your auto loan if your car is stolen or totaled.  If your car is demolished or stolen, gap insurance covers the difference between what your auto is worth (based on current market value) and the amount you still owe on your loan.

Avoid Shady Gap Insurance Deals at the Car Dealership

Here is the typical scenario. You choose the car you want to purchase, get the finance agreement pitch, and then move to discussing extras like gap insurance. The usual pitch is cloaked in terms of urgency, but the underlying narrative tells a much different story. You see, car dealerships profit like bandits off gap insurance. They retain commissions as high as 50% of the policy premium. That is money you’re putting right into their pocket just for the privilege of letting them sell a gap policy to you.

The reason most customers fall for the sales pitch is simple. They assume that the dealership is the only place to purchase gap insurance. While this is certainly false, the dealership won’t mention it, because they want to make the extra commission. Don’t fall for this. There are other places to purchase gap insurance for much less money.

You could purchase this coverage from other sources, like lenders or credit unions, and pay less. You could expect to find deals ranging from $250 to $700 annually with these options. They are not tied to dealerships, and as a result, have much better pricing

However, the best place to find a great deal on gap insurance is your auto insurance company. Select Insurance Group can find a price that is significantly less because we shop around for the best price, which can sometimes be as little as $20 per year. This is why it is always best to talk to a licensed agent before making any decisions. They have industry insight and experience and can help you make informed decisions.


How to Benefit from Gap Insurance Coverage

So what do the above scenarios tell you? It’s more than worth it to consider purchasing gap insurance from anywhere but a car dealership. There is really no reason to roll the gap policy into your dealership finance agreement, since you typically only need to get protection for a few years.

Gap insurance is a wise choice in any of these circumstances:

  • You are purchasing or leasing a new or slightly used vehicle.
  • You are buying a vehicle of significant value.
  • You are financing a new or used vehicle without a large down payment, creating a “gap” between your vehicle’s actual value and your loan amount.
  • You do not have significant cash savings that would allow you to cover the difference between the amount you owe on your loan and the actual cash value if your car is stolen or totaled.

As with most types of insurance coverage, everything comes down to your risk. If you are buying a car, gap insurance will most likely be optional, and you get to decide. Do you want to avoid the possibility of a large financial burden if something bad happens to your car, or are you willing to take that risk?

Industry statistics show that new vehicles lose about 30% of their value in the first year after purchase, and 20% the second year. As a result, car owners can end up being upside down on their loan: The value of the automobile is less than the loan amount. This makes gap insurance a wise investment if your vehicle is damaged or stolen within that time frame. That’s a benefit you cannot argue with. Yet, to purchase the best policy and get the most benefit, you should always talk to your Trusted Choice agent to help you decide whether gap insurance is worthwhile, based on your circumstances.

How Does Gap Insurance Work?  

Gap insurance covers the gap between what your vehicle is worth and what you are actually on the hook for in regard your vehicle loan after a collision. Does gap insurance cover theft? Absolutely. However, typically there is a waiting period (30 days or so) after the claim is filed. This leaves time for your vehicle to be recovered. If that occurs, then your standard insurance coverage activates. It is important to reiterate that gap policies are typically only needed for a specific period of time. Once the market rate of your vehicle plateaus and comes in line with current market rates, a gap policy is no longer needed. However, since the decrease in vehicle value is so drastic in the beginning, gap insurance is a worthwhile investment.

It works like this. Let’s say you purchase a vehicle brand new for $35,000. The moment you drive it off the lot, the value drops. Then, it may only be worth $27,000. If you are in an accident, your auto insurance will pay the replacement cost of the vehicle, or $27,000. The policy specifies that they must fulfill the obligation of replacement at current market value. It has nothing to do with the loan value of your vehicle. You are still $7,000 short. Gap insurance would make up the difference.

The cost of gap insurance will vary depending on a number of factors, including the value of your car. Did you just buy a new Jaguar or a Mitsubishi? Are you leasing a new hybrid car? At an average rate of just $40 per year, it is most likely worth the extra insurance expense if your car’s loan amount significantly exceeds its value. Another factor that will affect your gap insurance cost is the auto insurance company you choose. Not all insurance is the same, and prices can vary dramatically from one insurance provider to the next. Working with an independent agent who can compare prices and options from multiple companies will help you find the best coverage and price.

Getting the Best Deal on Gap Insurance

It is important to keep in mind that not all auto insurance coverage is equal. Therefore, it is in your best interest to work with an independent agent  like Select Insurance Group to make sure you purchase a policy that best suits your needs. We will get a much better deal than if you purchase a policy from a dealership. Contact a Select Insurance Group licensed agent today at 855-GET-SELECT (855-438-7353) to make sure you purchase the right gap auto coverage policy.

5 Ways to Find the Right Auto Insurance Coverage on a Budget

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5 Ways to Find the Right Auto Insurance Coverage on a Budget

5 Ways to Find the Right Auto Insurance Coverage on a Budget – Finding cheap Auto Insurance in  your state that gives you cover you need isn’t easy, especially with so many car insurance companies around. They may tell you theirs is the cheapest car insurance around, but is it the best car insurance for you?

At Select Insurance Group, you could get the cover you need for a lot less than you’d expect to pay simply by shopping your coverage with over 15 carriers. And don’t just take our word for it. *You can quickly see what our customers said they saved by switching to Select Insurance Group.

Now, compare auto insurance quotes online with Select Insurance Group (we can give you an insurance quote online in just three minutes) and see just how much you could save.

If you’re serious about getting a cheap auto insurance quote with some great policy options, get a car insurance quote online from us today.

Here are some tips for saving money on your auto insurance:

  1. Shop around. A Trusted Choice® independent insurance agent like Select Insurance Group can help you get quotes from multiple insurance carriers to make sure you are getting the best rates available.
  2. Bundle your policies. Most insurance companies offer discounts if you purchase more than one policy from them. And the more policies you have (homeowners, car, boat, motorcycle, personal umbrella, etc.), the greater your discount.
  3. Maximize discounts. Insurance companies usually offer a wide variety of discounts, such discounts for multiple policies, safe driving, and good students. Your agent will work with you to ensure that you receive any discounts that you qualify for.
  4. Keep a clean driving record. Traffic violations have a negative impact on your insurance rates. Avoiding tickets and accidents keeps your rates down, and many insurance companies offer additional discounts for people with clean driving records.
  5. Choose higher deductibles. The higher the deductible, the lower the premium. If you think you will have enough cash to cover your deductible if you have to file a claim, consider a higher deductible to lower your rates.
 
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