Paul purchases his "dream" vehicle which has a sales price of $40,000. Paul decides to make a down payment of $5,000 and finance the remaining $35,000. He is required to have full comprehensive insurance coverage because of the remaining balance owed, and he decided to add gap insurance to this coverage. Paul feels his purchase is fully protected, finalizes the deal, and leaves the dealership in his new dream car. Yay, Paul!
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Eleven months later, Paul is in an automobile accident and totals his vehicle. The insurance company calculates the FMV of his car at $28,000 which is 30% lower than his original purchase price. His insurance deductible is $500.00, so the insurance company agrees to pay him $27,500 for his vehicle. Paul still owes $34,000 on the loan for his car. If his gap insurance coverage agrees to pay, then gap insurance will cover the difference between the FMV and the remaining balance on the automobile loan. The gap insurance coverage pays Paul $6,500.00, then he pays off his loan and is now at a $0 balance.
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However, what about Paul's initial $5,000 down payment that he made? It was lost the moment his vehicle was totaled. If he wants to return to the dealership to purchase the same car and get the same financing terms, Paul will need another $5,000 down payment. If Paul is like a majority of car buyers, he will have to wait and save another $5,000 for his next down payment.
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Thankfully, Paul elected to receive YourCo’s Down Payment Investment Coverage on his original purchase. Therefore, once his automobile was totaled, he qualified to receive a $5,000 payment to replace the initial down payment he had previously made. This allowed Paul to have the same initial down payment on his replacement automobile and establish the same financing terms.