Many auto dealers offer low down payment options to sell more vehicles. Vehicles depreciate quickly. Early in the loan term you may owe more money than the vehicle is worth. This can be a serious problem if your vehicle is totaled early in the loan or lease term.
An Example of Loan Gap Coverage
Auto insurance companies pay the “actual cash value” (similar to “book value”) of your vehicle. The value may be less than the amount you owe on the loan or lease.
Say your dealer offers a sweet “no money down” incentive on a $32,000 vehicle. You total it 3 months later in a crash. The book value is $28,000, but you owe $31,000 on the loan. The bank comes looking for $3,000. Uh-oh.
Luckily, you bought loan gap coverage. Instead of paying the book value the insurance company pays you the amount you owe. You can start over again with no debt. Not bad, huh?
Some Restrictions Apply
- Most insurers only sell loan – lease gap coverage in the first few months you own the vehicle.
- Coverage usually “drops off” after 36 months. By that time, hopefully your loan is no longer “upside down”.
- Your vehicle has to be a total loss.
- Of course, you have to buy collision coverage on the vehicle.
- Loan-lease gap coverage usually costs an additional 6-8% of the physical damage coverage on the vehicle.
Our Maine insurance agency is ready with answers to your personal, business or professional liability insurance questions. For answers, or to get a Maine auto insurance quote, or Contact Noyes Hall & Allen Insurance in South Portland at 207-799-5541.