Currently, car loans may last as long as four to six years and leases are becoming more expensive. Whether your vehicle is a coupe, sedan, van, sports utility vehicle, hybrid, or truck, your vehicle's value will depreciate very quickly. A rapid loss of actual value accompanied by a longer loan obligation spells trouble.
It isn't unusual for the amount of the unpaid loan and lease balance to become much larger than the vehicle's value. This disparity exists over much of the loan or lease period. Making matters worse is that this gap is usually only discovered after a total loss. After the insurer pays its obligation, you may have to pay the bank or leasing company thousands of dollars out of your own pocket. The situation is an unfortunate side effect of the need to extend financing to accommodate extremely expensive vehicles. However, there are a couple of solutions to the dilemma.
The Auto Loan/Lease Coverage Endorsement
This optional coverage is available from a variety of insurance companies. The form provides coverage for the following:
Generally, this optional coverage excludes items such as overdue lease payments, penalties (for excessive use, abnormal wear and tear, or high mileage), security deposits, costs of warranties or various types of credit insurance, or carryover balances from a previous lease.
Auto Replacement Cost Coverage
For an additional premium, a new car owner may buy coverage to settle major losses based on the vehicle's replacement cost rather than its depreciated value. There are some limitations, such as:
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