Do You Need Gap Insurance When Buying A New Car?
Reader question:
If I have to get a new car as a result of a car insurance accident, does my gap new car insurance coverage take care of the down payment for my new vehicle?
Britney
No, it does not, Britney.
Unfortunately, there is a reason why you have to be way more careful when you own a new car, and that is because even with gap new car insurance you will be entirely responsible for getting yourself a new vehicle. The reason for this is that gap insurance has one purpose only, and that is to create a bridge between what your car is worth and what you owe. For example, the car that I am purchasing right now is worth fifteen thousand dollars, but I still owe eighteen thousand dollars on it. This is called an upside down loan, and it means that you owe more for a car than it is actually worth. This happens a lot with new cars, which are worth a lot straight off the assembly line but depreciate rapidly.
If I had gap insurance (and I do), then if I got into a car insurance accident I would not have to worry about continuing to pay on a car that I know longer have. My collision coverage will give me the fifteen thousand dollars that my car is worth, and then the gap coverage will provide the other three thousand. However, at the end of all this, while I would be safe from debt, I would still be stuck paying for a new car. I would no longer owe anything on my old car, but the gap insurance does not worry about that, it only worries about bridging the gap between what you owe and what your car insurance coverage is actually worth.
Cheers,
Fashun Guadarrama.
Where Should You Buy Used Car Insurance? Who Has Lowest Rates?
Reader question:
A couple of weeks ago I bought a used car in cash, and now I need to get used car insurance. Now, I know this car isn’t top of the line, but I’m not sure what kind of coverage I should get. Some help?
Anthony
Good question, Anthony.
Used cars tend to cost more in upkeep than do new cars, especially the used cars which can be bought for cash. They need more repairs more often and are less reliable on the road. On the bright side, though, you don’t have to make a monthly payment for them, so the only thing you need to think about is getting car insurance coverage, which confuses a lot more people than just you, Anthony. On one hand, everyone wants to protect their car, but that protection needs to be taken down a notch or two with used car insurance.
Every state except New Hampshire makes you get some kind of car insurance, usually just the basic liability.This coverage takes care of the other driver and their car insurance claims if you cause an accident, but the amount that the state makes you get normally isn’t enough to protect for real. If you want to stay on the safe side, I would get more liability than required. That goes even if you have the cheapest car in the world, and it goes even more so if you have a big, damage causing vehicle like an SUV.
When thinking about what kind of coverage you should get beyond just that, you have to take into account the cash amount that you paid for the car in the first place, and remember that you probably paid more than it is actually worth. If your car is worth than a thousand dollars, stick to the basic coverage. If it’s worth a little more, you should consider a little further and might decide to only get liability or to get a little more.
As someone who has had bad experiences with cash cars constantly breaking down, I suggest that for an older car you get mechanical breakdown coverage, since you normally don’t have the option of getting a guarantee. Not all car insurance companies offer this, but it is extremely useful. GEICO is one of the companies that does.
Cheers,
Fashun Guadarrama.
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