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Gap Insurance. What Is It and When Does It Make Sense?
May 25, 2021
Gap Insurance is Growing in Importance - Learn Why
Gap insurance is recommended more frequently because lenders are now willing to finance a greater percentage of the vehicle over a greater span of time.
There was once a time when lenders would expect a reasonable down payment (10–20%) and limit the auto loan terms to 3–4 years. Fast forward to now when banks are willing to finance 100%+ of the vehicle's value over as many as seven (7) years.
With depreciation, that can result in a borrower (owner) of a car to owe more than the value of the car for nearly the whole term of the loan.
Below is an amortization schedule and graph to illustrate how a “Gap” is created when a $30,000 vehicle is financed over an 8-year loan with 0% down versus a 4-year loan with 20% down. Both loans assume a 3% interest rate.
In this illustration, we used a higher than average depreciation to better demonstrate the vehicle’s value is less than the amount owed from day one until year six.
Illustrated in graph form, “The Gap” looks like this:
“Why is gap insurance recommended now when it was not needed before with regular car insurance?”
If totaled, an unendorsed car insurance policy pays for the vehicle's current value, not the amount one might owe on a loan.
Many borrowers are upside down or simply owe the bank more than the car is worth in today's lending environment.
Gap insurance is designed to make up that difference.
Important Note: Some insurance companies do NOT provide the opportunity to add “Gap” coverage. Call our office and we will be glad to review with you those carriers who offer this valuable protection.
Have additional car insurance questions? We LOVE to help! Please feel welcome to call us at 607-324-7500.
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The year 1962 was marked by historic events—from the Cuban Missile Crisis to the passing of Marilyn Monroe. But while the world focused on these headlines, Lee A. Ryan was working alongside his brothers on my grandparents' farm when an unexpected opportunity arose—an invitation to join the insurance business. With no prior experience, no clients, and limited resources, my dad took a leap of faith and partnered with Nationwide Insurance to start an agency from scratch. Operating out of his home on Karr Valley Road in Almond, NY, he built his business one relationship at a time (some of whom are still clients!), laying the foundation for what would become a lasting legacy.
“Am I covered if I drive someone else’s car?” Or, “Am I covered if someone else drives mine?”
Many don’t realize that the insurance industry is one of the country's most regulated business segments, especially in New York State. The New York State Department of Financial Services (NYS DFS) wields significant control over the insurance business and has a stated goal of protecting consumers.
Most property insurance companies offer Actual Cash Value or Replacement Cost settlement options. Typically, insurance companies will require that you insure the property to the settlement value you choose. If you select Actual Cash Value, the amount you may be required to insure the property for will be less than the corresponding Replacement Value.
In that spirit, the Ryan Agency is sponsoring a Stearns BBQ Dinner pickup at our office on 57 Broadway Mall in Hornell on September 12th from 3:00 PM to 4:30 PM.
Today, an individual’s credit history can play a more significant role than any one of those traditional factors. Good Credit Scores lead to a Positive Insurance score. A good Insurance Score greatly influences what someone will pay to insure their vehicles.
Insurance companies offer various discounts for which their policyholders may qualify.
Great Eight number Six (6) suggests taking a look at removing Comprehensive and Collision on Older Vehicles.
By reducing the number of claims in your insurance history, you can significantly affect your rates in the future.
Sometimes, this concept meets with resistance from policyholders. The thought of paying more in the event of a claim is off-putting to some. Even if that means I pay more for my insurance.
