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A 60-cent glitch

When Munoz bought his BMW X5 back in 2020, he knew he was paying a premium for it, hence why he bought extra insurance protection. It was the height of the COVID-19 pandemic, and with supply chain issues limiting the availability of brand new cars, many dealerships hiked their prices.

He sought financing through the car dealership for the $60,517.86 purchase price, but what came back from the credit union was an auto loan totaling $60,517.26 — 60 cents shy of the agreed price.

No one caught that 60-cent mistake until Munoz submitted the $18,651 claim to Safe-Guard, his gap insurance company, which he says denied payment over the discrepancy in the paperwork.

“It was kicked back because the loan amount didn’t match the contract amount,” Munoz said. He then spent seven months trying to close out his claim with no success until he contacted On Your Side’s Gary Harper, who broadcast the story on June 4.

“I don’t have a problem with being patient, I think I’ve been more than patient,” Munoz said.

Harper contacted Safe-Guard and questioned them about Munoz’s claim. On June 25, On Your Side reported that Munoz finally received a check from the insurance company worth over $18,000.

So, while Munoz’s story had a happy ending, there are lessons that can be learned from his ordeal. Namely, do your market research when buying a car to ensure you’re not overpaying, make sure you have enough insurance coverage (and don’t leave any gaps) and always double-check your documents before signing any purchase agreements. This could save you from a costly mistake.

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What is gap insurance?

When you buy or lease a new car or truck, it will start to lose value as soon as you drive it off the lot. While depreciation rates vary by vehicle, cars typically shed about 20% of their value in the first year and about 60% within the first five years, according to auto research company Kelley Blue Book.

If your car is totaled, standard auto insurance policies will pay out the current market value of a vehicle at the time of a claim. So, if you bought a car for $20,000 and your car is totaled five years later in an accident, your car (and insurance pay out) may be worth around $8,000.

This could cause problems if — like Munoz — you bought your vehicle using financing, because the amount of money you own on an auto loan or lease may exceed the insurance pay out you would receive in the event of severely damaging or totaling your car.

This is where gap insurance comes into play. It will reimburse you the difference when the insurance pay out for a total loss is less than your outstanding loan or lease balance — ensuring that you’re never upside-down or in negative equity if your car is a write-off.

You can buy gap insurance from most standard auto insurers or auto dealers. The Insurance Information Institute says it's a good idea to consider buying gap insurance if you bought a car or truck with less than a 20% down payment, you financed the vehicle for 60 months or longer, you bought a vehicle that depreciates faster than others or rolled over negative equity from an old car loan into the new loan.

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Bethan Moorcraft is a reporter for Moneywise with experience in news editing and business reporting across international markets.

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