If you’re buying a brand-new car or truck with a loan, you may want to get gap insurance. Cars lose up to 20 percent of their value in their first year on the road. That means that if your new car gets totaled or seriously damaged in the first year you own it, it may have already depreciated so much that you could still owe more money than your insurance company declares it’s worth. Gap insurance covers the difference between what your insurance company will pay and what you may still owe on your car.
Gap insurance adds about $20 per year to your insurance premium, according to the Insurance Information Institute. Your car dealership will likely offer this coverage to you when you’re working through payment details, but you can save money by using your own auto insurance company.
Insurance carriers typically drop your gap insurance automatically once you’ve had your car or truck for a year or two, but you should routinely compare what you owe to your car’s value to be sure of whether you still need your gap insurance.