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Family Standing Behind SUV in DrivewayBuying a new car can be a very exciting time. But even amidst the joy of choosing a new vehicle, you also have to consider the implications of taking out a large loan that will take several years to pay off. This consideration is especially important because cars notoriously depreciate in value quite quickly.

Just how quickly? Within one year of owning a new car, it will lose about 30 percent of its value. And it will depreciate in value by about 50 percent after three years. Being that the sticker price drops so quickly, it's not uncommon for people to find themselves upside down on their car loan. This means that you owe more on your loan than the vehicle is worth.

Let's break this down a bit further. Say you bought a car and a year or two later it's totaled in an accident. You bought the vehicle for $35,000, and you still owe $25,000 on your loan when it's totaled. Your car's value at the time of the accident — because of depreciation — is $20,000. This is the value your insurance provider is likely to reimburse you for. So after a $500 deductible, you may receive a payout of $19,500. But that leaves $5,500 that you still owe on your loan — plus, no car.

The simplest way to avoid a similar situation is to add gap insurance onto your car insurance policy. Gap insurance helps cover the difference between what your insurer pays and the loan balance you still owe. This is an optional form of coverage, but it's extremely valuable considering its low premium of about $30 per year (a value that decreases as your car ages).

And because you can add gap insurance to your policy at any time, you can work with your independent insurance agent to find the best option. This eliminates the need to accept the first offer that the car dealer offers. Finding a good policy with the right coverage limits and premium is always a good idea.

Have you financed a new vehicle recently? Ask your agent how gap insurance can help protect your investment.

Get the right coverage today. Call TCU Insurance Agency at (800) 772-8043 for more information on the car insurance options we offer.
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