Sin #6 - Owing More Than Your Car's Value

Today's post-holiday post likely only applies to a sub-set of you, but it's an important topic for all HMW to understand. But before I get started, since it's a relatively mundane topic, I'm bringing back the wine pairing -- today's is Merlot.

"But isn't Merlot out of favor?" you ask. This is precisely why I'm recommending it! While everyone else is pawing at the shelves to pay a Pinot premium, you'll enjoy Merlot's sexy, silky, blackberry-infused flavors and perhaps even more wine quality for your money. (Besides, Miles is one of the worst type of wine geeks -- he didn't even know his prized Cheval Blanc was predominantly a Merlot blend.) So uncork, pour and dive into stop gap coverage!

Most of you own a car. Some bought outright (good for you!), some lease, and others are paying down a loan. For HMW in the latter two cases, you may need additional auto insurance coverage. Auto gap coverage is what covers the difference between your car's value and the amount you owe on the lease or loan.

Have another sip -- it's math and worst-case-scenario-thinking time. Let's say you owe $30,000 on your car. But it's only valued at $23,000. If you have the misfortune to be in a car accident that totals your vehicle (or some ne'er-do-well steals it), your insurance company will cut a check for the value of your car less the deductible -- not the value of your loan. So guess who would be liable for the $7,000 difference? Not exactly how you'd like to spend your money nor your SDH fund, especially when you've just had an accident!

Gap coverage pays the $7,000 difference -- a lot of peace of mind for a relatively small monthly payment or a one time fee. Most dealerships offer high prices on this coverage -- shocker, so I don't recommend that route. The best bet is to call your auto insurer (if you have a good relationship -- otherwise, this blog should cue you to shop around for that, too), and discuss the possibility with them. They'll give you an estimate of the value of your car, which you can double check on Bluebook, and a quote. If you like, you can comparison shop to make sure they're giving you a good deal by Googling "gap coverage" as there are several companies dedicated to this type of insurance only.

Do your future a favor in the event of a wreck -- unfortunately they're so common with all the idiots on cell phones sans hands-free (so '90's): make sure all of your car's payments are covered.