Brand New Car - Depreciation

[mactube]

Hi ,
I just bought a brand new car and keep hearing about depreciation of the cars value as soon as you drive off the lot and gap insurance that my car dealer wanted to sell me.

I guess everybody has see the TV commercial of Mutual Liberty where a man talks about his T-Bone accident and his insurance that doesn't want to pay him the full amount even though his car didn't have its first oil change yet.

My question(s):
How much depreciates a car per year / mile ( in insurances minds)?
What is the best ( affordable insurance to have those or similar policies like the ones Mutual Liberty is advertising and is Mutual Liberty really paying out 100% of the cars value / purchasing price ?

If I have to what are good gap insurances ?

 

[djs]

Many carriers will cover 'vehicle replacement' the first year of new car ownership. Basically, this is what Liberty Mutual advertises. If you have a name brand carrier for coverage, you should ask your agent, the policy probably covers replacing the vehicle if it is totaled in the first year.

This doesn't solve all problems though. If you have rolled in negative equity into the vehicle loan, you will have to convince the finance company to continue to roll it over. If you change the vehicle at all, you will have a bit of a hassle, or you'll pay the difference.

Gap insurance is valuable if you didn't make a reasonable downpayment on the car. You can assume the car depreciated about 10% the second you signed the dotted line, much less drove it off the lot. In short, why would someone buy a used car (even if it wasn't driven yet) vs a brand new car? Of course, the 10% number is a generality and you need to think about rebates, incentives, etc, which can make the number larger.

If you look at the cap costs of a lease, you can get a really good feel for what the manufacturer things the depreciation of that vehicle will be over the term of the lease. I don't follow this stuff anymore, but a long time ago, the general feeling was the manufacturer wanted the car to be worth about 50% value at 5 years. Most of that would occur in the first 2 years though.

Dan

 

[CKSINSURANCE]

gap insurance covers your balance owed to the lender if your car was totaled.
because the car depreciate much faster than your loan balance would reduce, there will be a gap between what the insurance company would pay you and what you still owe to the lender.

it does not cost that much, but if you get replacement cost coverage for the first year, then you don't need it.

think about buying it from the second year you owned the car.

 

[mactube]

@djs so if the insurance company pays for the replacement of a new car within the first year the equity in the car should always be positive after I made the first payment towards the loan !?

Example ( Accident Car Totaled) :
Sticker Price - 30k
2 months car not - 1k
Costs to get car replaced - 30k

I should be in the positive with 1k !? The insurance pays 30k to my bank and I can buy a new are for 30k .. I can continue making payments towards the loan for
29k , right !?
( If I was with Mutual Liberty as advertised )


In my case:
I took advantage of a sale ( 20% on a brand new 2014 model )
So for a relacement, I should already have equity in the car !?

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@cksinsurance who offers gap insurance if needed ?

 

[djs]

Not even close.

If you put $5K down on the car, drive the car off the lot, make 6 payments, wrap the car around a telephone pole, which falls down and crushes the car, but you come out without a scratch.....

You then file the claim with the carrier, who will work with you and the dealer to replace your car. You need to work with the bank to swap the loan on the car to the new one. You get no cash out of the deal, in fact, you pay your deductible, but in this rare case, you get a new car instead of a six month old new car.

At no point did you probably have equity in the car since you went from a 'new' car to a used car the moment you signed for it. As you drove it, the car continued to depreciate rapidly. The fact you made a downpayment meant most of the taxes were covered and some towards the initial depreciation. Your monthly payments the first few months probably didn't keep up with depreciation.

Dan

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Also, keep in mind it takes a LOT to total a brand new car. There is a lot of value for the carrier to work with on the repairs. It does happen though.

 

[hesse]

Insurance's job is to put u in the same situation as before the loss. You lost a used car u get a used car. You can buy an endorsement to replace it witha new car for a price. You think your new car with 100miles on it is new to everybody else it is used

 

[mactube]

@djs of cause there will be no cash back if equity in the car.. to make it easier : In cause of a total accident if the car has 4k miles on it they will get to chose another car with 4k miles minus $1k deductible and the I will have to work with the lender to change the loan policy to the car!?
So my main question is: Will all insurance companies handle it this way ( even the cheap ones ( or do I have to go with a premium insurer ) and would for example State Farm have the same policies then what Mutual Liberty is advertising ?

 

[djs]

When you buy a policy, what you are actually buying is the claims handling of the carrier.

No, not all carriers will handle it the same as Liberty Mutual. You have to ask as part of the policy purchase process. In fact, you'd have to ask Liberty Mutual as well, simply because all first year replacement style policies have several 'ifs, ands and buts' to them.

Why are you so concerned about this? If you think there is a reasonable chance you are going to total your car in the first year, I recommend gap coverage as well as making sure your policy will replace the car. Some auto insurance carriers allow you to add gap coverage as well, usually at a MUCH lower cost then what the dealer offers, plus you can cancel the additional coverage if you feel its not needed any longer.

Dan

 

[indienoise]

Ive been in the car and financing business a while and been dealing with insurance from one angle or the other for 12 years. I can tell you, people always undervalue someone else's vehicle and overvalue their own. You will not have positive or even neutral equity in your car unless you put 20% down and have a loan term of 3 years or less.

If you can't afford 1-5k out of pocket to pay the difference on your loan and more down on a new car, just buy the gap insurance. It's worth it.