Most new cars depreciate quickly in their first year. That means that the value of the car drops significantly after you buy it over the first 12 to 18 months. That’s because the vehicle is no longer brand new, and as a result if you tried to sell it, you couldn’t get the full price you paid for it. Most car insurance policies provide a payment to you in the event of an accident that’s based on the value of the car right before the incident happened. With a nearly new car, that could mean the insurer doesn’t pay you enough to cover the loan you took to buy it.<\/p> <\/p> <\/p> <\/p> Gap insurance covers that “extra”\u009d. For example, if you buy a vehicle for $25,000, it may depreciate in value to $20,000 during the first year. If you are in an accident a few weeks after buying the car, and the insurance company totals it, your gap insurance can kick in. The insurance company may pay you only $20,000. Gap insurance may pay the rest of what you owe “\u201c in this case, $5,000 “\u201c to your lender.<\/p> Gap insurance is beneficial to those who buy a new car or lease a new vehicle. It’s an inexpensive way to protect your car from this type of financial loss. If you didn’t have it, you would still be responsible for paying your lender those extra funds. Gap insurance limits that risk to you.<\/p> <\/p> \nGap Insurance Clearly and Briefly Explained<\/h3>
The value of most new cars drops significantly after you buy it over the first 12 to 18 months.<\/blockquote><\/p>