Let’s say you just bought a spanking brand new car. It has all the new tech, all the bells and whistles and as your seat is warming up and you are figuring out how play a song on your radio, you rear end someone and total it.
You walk away unscathed other than your pride being bruised. Your pocketbook may take a big hit though if you didn’t protect your loan. If you totaled your new $40,000 car, it is worth less than that the moment you drive off the lot.
Let’s say you owe $39,000 on the car but when you total it, the bluebook value is $36,500. Insurance companies cover vehicles for actual cash value and will reimburse you for the amount the car is worth. In this case, you would be $2500 short.
There are a few ways to cover this gap through something called “gap coverage”. You can buy standalone coverage through the dealer which they will offer you when you are signing that mountain of paperwork.
Or, you can call your trusty insurance agent (if you have one) and have gap coverage added to your policy. It generally costs less than what you can get at the dealer and there is no additional paperwork or agreements to sign.
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