We all know that brand new cars lose value the minute you drive it off the lot. Some cars are known to lose up to half their value in the first 3 years. This means that you may owe more on your car than what the car is actually worth during those first few years of ownership. It’s called being upside down.

When you are upside down in a car and you try to sell it, you have to come up with the difference owed versus the difference you received at the time of sale. This same concept applies to a car accident. If you owe more on the car than what it is worth at the time of the car crash, you have to come up with the difference. This could be a few hundred dollars, but all too often with newer cars, it could mean thousands of dollars. So how do you protect yourself from paying thousands of dollars out of your own pocket for an accident that wasn’t your fault? GAP insurance.

GAP insurance is usually under $500 to purchase. You can even buy GAP insurance later on after owning the vehicle for a little while. The whole idea behind GAP insurance is when you total your car and the value of your car is worth less than you owe on the vehicle, GAP insurance steps in and pays the difference for you so you don’t have any expenses out of pocket. Heres the math:

The amount you still owe on the car at the time of accident: $20,000

The amount the insurance company pays you as fair market value: $18,000

The amount you still owe after the insurance company pays you: $2,000

So instead of you having to pay the difference of $2,000, GAP insurance steps in and pays the $2,000 for you.

If you’re constantly one that buys new cars and is always upside down in your loan, GAP insurance is for you. For more information on GAP insurance, visit this site.