How to cover a car's value, insurance gap

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The cost of buying a sports utility vehicle and many other types of cars can be $35,000 or more. If the vehicle is wrecked or stolen within the first year, your insurance company may say it's a used car and is now worth just $26,500. You have lost $8,500, and you'll probably have to pay the difference almost immediately.

The consumer advice editor at edmunds.com, a car-buying Website, says that when you buy a new car, it's worth 20 percent less as soon as you drive it off the lot. By the end of the first year, depending on how well the vehicle holds its value, it can depreciate by as much as 35 percent.

Because loans for many expensive cars, SUVs, and trucks
extend for five or six years, many buyers may be "upside down" in value versus loan balance for two years or more. For many owners of newer cars, GAP insurance can offer needed protection. GAP stands for guaranteed auto protection and covers the difference between the settlement from the insurance company and what is owed on the vehicle loan or lease.

Not everyone needs such insurance. To determine whether you do, check the market value of your car on Websites such as edmunds.com and kbb.com and compare it to your loan balance.

Then ask your insurance company how it will determine the value of your car or truck in the event of a loss. Ask your car dealer whether it offers GAP insurance and how much it costs.

Long Island Investment Tips Articles > How to cover a car's value, insurance gap