Is the actual value of your car worth less than your loan?

Car loans can last any where from four to six years and the price of a leased car is becoming more expensive. No matter what the model of a vehicle is, its value will decrease rapidly, as soon as it is driven off the lot. The loss in actual value accompanied by a longer loan responsibility equals trouble!

The lease balance and amount of the unpaid load usually becomes much larger than the actual value of the vehicle itself. This amount difference exists throughout much of the loan/lease period. What makes matters worse is that this gap is usually only determined after a total loss. The insurer pays the actual cash value of the vehicle and instead of being reimbursed for your total loss, you will have to owe the bank or leasing company thousands of dollars from your own pocket. It is an unfortunate side effect of having to extend financing in order to afford extremely expensive vehicles.

Solutions to this predicament?

The Auto Loan/Lease Coverage Endorsement option is always available and provides coverage for the following:

  • Leased vehicles: reimburses you for the difference between the amount due under the terms of the lease and the actual cash value of the auto in the event of the auto’s total loss.
  • Owned vehicles: Pays any outstanding indebtedness incurred by you for that financed new vehicle in the event that there is total loss or damage to the vehicle and the amount due under the finance agreement is greater than the actual cash value of the automobile.

On smaller losses, an insurer will normally pay to have the damages repaired or parts replaced, and the  auto loan/lease coverage option is not optional.

Exclusions

overdue lease payments

-financial penalties imposed under a lease for excessive use, abnormal wear and tear, or high mileage

-security deposits

-costs for extended warranties, credit life, health, accident, or disability insurance purchased with the loan or lease

Auto Replacement Cost Coverage availability varies by state. For an additional premium, an owner of a new car may buy coverage to settle major losses based on the vehicles replacement cost rather than its diminished value. There are some limitations such as:

  • coverage is usually only available for cars up to 6 months old
  • there may be a maximum dollar amount that applies to total loss
  • coverage may only be available for the first few years of the car’s life

If you have a new owned or leased vehicle and are worried that you may suffer large out-of-pocket expenses, you should talk to an insurance professional.  They will help to fully answer your questions and then you may end up finding that the extra protection is totally worth the extra cost.

If you have any questions about your existing policy, are inquiring information about a possible future policy or need further information, please call us at (631) 738-7300 or get a quick quote at www.vrpinsurance.com

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February 7th, 2013 by VRP Insurance Agency