Fall Into ‘The Gap’ - Gap Insurance, That Is

Car insurance agents everywhere are probably pondering a name change for "gap insurance." After all, The Gap clothing line has lost a lot of its credibility. On Main Street, their clothes and shops just aren't very cool anymore, and as a result, the company is doing horribly on Wall Street. In fact, the CEO was just given the boot! With all that in mind, fashion-conscious drivers may be worried that driving with gap insurance will make them uncool. On the contrary, purchasing gap insurance can be one of the coolest financial decisions you ever make.

Who Needs Gap Insurance

Let's say you buy a $20,000 car with $2,000 down. Since you're financing $18,000 of your purchase price, you will be required to carry full coverage for $18,000 worth of collision and comprehensive insurance.

A year later, you've paid down the principal on your car loan by another $1,000. You still carry collision insurance for $18,000 worth of damage, and when you're in an accident that totals your car, you're sure glad that you did! Thankfully, no one is hurt, and you look forward to cashing in your insurance check, paying off your bank loan, and then buying another car. The only problem is, your car insurance company will only cover $15,000 worth of damage to your car, since that was its replacement value. The bank, on the other hand, still wants its $17,000, leaving you short by two grand.

In a situation like this, gap insurance covers the difference. You are not legally required to purchase gap insurance, but as you can see from the example above, it can be a good idea given the right circumstances. If you put a relatively small down payment on a fairly new car with an expensive sticker price, you should probably begin shopping around - not at "The Gap" - but for the gap… insurance.

How to Buy Gap Insurance - Is it Worth it?

Gap insurance is most commonly sold by auto dealerships - not car insurance agents. This means that you should normally look to purchase gap insurance at the same time you're buying your new car. However, this does not mean that it's impossible to find gap insurance from a traditional car insurance agent - using carinsurancerates.com, almost any type of policy is only a few clicks away.

Generally, you can expect to pay around $30 a month for gap insurance, but many dealerships instead charge a one-time fee of around $300. The question you need to ask yourself is whether or not it is worth it. Insurance is a financial product, and just as Wall Street traders buy and sell bonds, you need to consider the risk/reward equation of any insurance policy. Is it worth it to spend $300 so that you're protected? How quickly will your car depreciate? How likely is it that you'll be in an accident? These are the questions that you need to answer for yourself.

It Pays to Review Your Coverage

This story brings up another good point: Why pay for $18,000 of coverage on a car with a $15,000 replacement value? You are literally throwing money away with every premium! This is one of the many reasons that experts recommend you shop around for the best deal each and every time your six-month car insurance policy expires. Literally millions of dollars are wasted every month by Americans who decide not to shop around - think of all the money you could save by spending just fifteen minutes online! Multiply that by four and if your hourly wage is less than the result, you obviously should invest some energy in lowering your rates.

When was the last time you reviewed your car insurance policy? Honestly? Well, you've made it this far. You're here and you're reading this article. Now scroll up and to the left and start your free quote. Many people actually increase their coverage while simultaneously lowering their premiums by using carinsurancerates.com. What are you waiting for?