Gap insurance is a type of auto insurance that protects drivers from financial loss in the event of an accident. Specifically, gap insurance covers the difference between the amount owed on a car loan or lease and the car's actual cash value at the time of the accident.
For millennials, gap insurance can be particularly important. This generation is known for its tendency to take on large amounts of debt, often in the form of car loans or leases. Additionally, millennials are more likely than previous generations to purchase new cars, which can lose value quickly.
If you're a millennial driver, here's what you need to know about how gap insurance works:
Why Do You Need Gap Insurance?
When you purchase a new car, it begins to depreciate in value as soon as you drive it off the lot. In fact, new cars can lose as much as 20% of their value in the first year alone. If you get into an accident during this time, your car's actual cash value could be significantly less than what you owe on your loan or lease.
This is where gap insurance comes in. If you have gap insurance, your insurance provider will cover the difference between your car's actual cash value and the amount you owe on your loan or lease. This can save you from having to pay thousands of dollars out of pocket in the event of a total loss.
How Does Gap Insurance Work?
Gap insurance is typically sold as an add-on to your existing auto insurance policy. You'll pay an additional premium for this coverage, but it can be well worth it if you're in an accident.
If you have gap insurance and your car is totaled in an accident, your insurance provider will first pay out your car's actual cash value. This is the amount that your car is worth at the time of the accident, taking into account factors like its age, mileage, and condition.
If the actual cash value of your car is less than what you owe on your loan or lease, your insurance provider will then pay out the difference, up to the limit of your gap insurance policy.
How Much Does Gap Insurance Cost?
The cost of gap insurance can vary depending on a number of factors, including your age, driving history, and the make and model of your car. On average, however, gap insurance tends to cost between $20 and $30 per year.
While this may seem like a small amount, it's important to remember that gap insurance is designed to protect you from a potentially large financial loss. If you're already struggling to make car payments, adding gap insurance to your policy may not be feasible. However, if you can afford it, gap insurance can provide peace of mind and protect you from potential financial hardship.
When Should You Consider Gap Insurance?
If you're a millennial driver with a car loan or lease, gap insurance is definitely worth considering. This is especially true if you owe more on your car than it's worth or if you've purchased a new car that's likely to depreciate quickly.
Even if you have a good driving record and don't expect to get into an accident, accidents can happen at any time. Having gap insurance can provide added protection and help you avoid a financial nightmare if the worst does occur.
In conclusion, gap insurance is an important type of auto insurance that can protect millennial drivers from financial loss. If you're a millennial with a car loan or lease, it's worth considering adding gap insurance to your existing policy. While it may cost a little extra, the peace of mind it provides can be well worth it in the event of an accident.