Now lets consider what would happen if you wreck that new car on the way home from the dealership. We'll assume that you financed the entire purchase price of the vehicle with the local bank. You are on the hook for $20,000.00. But, you did your homework and made sure that your automobile insurance was transferred to the new car prior to leaving the dealership. Nothing is hurt in the accident but your pride. You file a claim with your insurance company and they determine that the vehicle is a total loss. Bummer, but, you can start over from square one once you receive the $20,000.00 from the insurance company to pay off the loan. Wrong! Remember that the vehicle was depreciated by $4,000.00 the moment you drove off the lot. The insurance company will only reimburse you the depreciated value of the car or $16,000.00. You have to come up with $4,000.00 out of your pocket to pay the difference.

As another way of getting our money, insurance companies have devised yet another insurance policy. Automobile Gap Insurance. Automobile Gap Insurance insures you for the difference between the amount that you owe on the vehicle and what the insurance company determines the automobile is worth. Hence the "gap" between values. A select few traditional automobile insurance policies cover the total amount financed, but most do not.

Automobile Gap Insurance is not required by most lending institutions. Generally only providing coverage for collision accidents and theft, not all gap insurance is the same. If you are shopping for Automobile Gap Insurance evaluate your needs before consummating a purchase. Factors that might influence your decision to buy Automobile Gap Insurance might be (1)if you didn't put a down payment of at least 20% on the automobile; (2)if you are leasing the automobile instead of purchasing it outright; (3)if you financed your automobile for more than 4 years; and (4) if you are carrying negative equity against the automobile because you rolled over the debt from your trade-in.

Take your time when considering an Automobile Gap Insurance policy. Evaluate your needs; know what your traditional insurance policy covers; and carefully select the policy that best fits your situation.

If you would like more information about Gap Insurance, visit my website at Gap Insurance.