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Derbygal · Nov 16, 2008 at 1:01 PM

wolfpac said: ↑

VA, it's sorta a gimmicky insurance and not needed if you don't get into car loans. For example, if your car is worth 5K and your loan is 10K, then gap insurance covers that 5K if it is totaled.

The problem I have with all this sorta gimmicky insurance is that statistically, it isn't used and it is often expensive in cost/dollar. I know statistically it isn't used because well these companies make tons of money on them and push them hard. I also majored in Statistics and we studied these things and the probability of them being used is very low and the vast majority of the premiums paid is for profit/commission and not sat aside to cover losses (ie you could save the money and self-insure it). The other problem is that it is decreasing insurance. In other words, the car's value deceleration will slow down and the later payments will go more heavy to principal so the gap will narrow but your premium doesn't narrow. In the above example, you are paying a premium to cover a 5K gap but then a year later, you are paying the same premium to cover a 2500 gap. It gets really expensive on a cost/dollar basis then.

Same thing with extended warranties BTW. Some studies have shown that 80% of the consumer cost with extended warranties goes to commission/profit. And, I know from my own work that the probability of them being used is low. Trust me, they know exactly how many are going to fail within 2/3/4/5 years of any product. I'll give an example, my parents recently had to replace their Fridge. They bought it five years ago in July and the compressor died October this year. The 5 year warranty ran out in July this year. That isn't just bad luck. It's just statistically known that a very high percentage will last for 5 years and then start dying at higher percentages after that. That is why they didn't sell them a 20 year warranty on their Fridge. Just something to think about
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Just FYI on GAP Insurance...most people don't know about it because most companies DON'T push it as it's not required, I had to ask for it when I bought my car, and I was glad I did.

Three months later my brand new car was totalled & I would've been stuck owing/paying 5K from the gap had I not had the insurance.

Worth every bit of the extra $300 I paid for it IMHO.

wolfpac · Nov 16, 2008 at 1:18 PM

One example doesn't make it a good deal. For every one person that uses it, there are millions that don't and thus, the obscene profits these companies make on these policies.

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Derbygal Get A Grip!

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