You already know that when you drive your brand new car off the lot, it quickly starts to lose its value. If you are in an auto accident soon after buying that car, you might discover that you do not have enough coverage to fully replace that car. You might actually owe more on the car than your car insurance company is willing to pay for the accident. This is where Replacement Coverage or GAP Coverage could help.
Replacement coverage ensures that you will be able to afford a new vehicle, the same make and model of the car that was totaled. GAP coverage usually encompasses New Car Replacement for the first year, and then pays the difference between the actual value of your car and the amount you owe on that car, as long as you do not owe more than 120% of the car’s current value.
Which should you get?
Let’s say you buy a brand new car for $20,000. After six months, you are in an accident and the vehicle is totaled. Your car is only worth $16,000, but if you wanted to replace your car, it would cost you the $20,000 again.
In this situation, replacement coverage would pay the entire $20,000 that it costs to fully replace the car that was totaled.
If you have GAP insurance, this replacement would also be covered, as long as you did not owe more than 120% of the car’s worth. If you were in an accident when that vehicle was only worth 16,000 and you owed more than 19,000 on it, your GAP coverage might not cover a full replacement.
Before deciding which type of insurance is right for you, talk to an agent who can help you determine which option will provide you with the better result, based on the value of the vehicle you are insuring.
