Is Gap Insurance A Good Idea?

As the name suggests, Gap insurance is meant to fill a gap in already existing insurance coverage. The “Gap” in Gap Insurance stands for “guaranteed auto protection” and it is most typically offered on leased vehicles, for situations where the vehicle may be worth less than the total amount owed on the lease if the car is totaled, but gap insurance exists for many other types of loans as well. Without gap insurance, you would be on the hook for the difference between what the auto insurance pays for the totaled vehicle and what is still owed on the lease.

Signs like this are common in the U.K., but there is another kind of GAP car buyers need to be aware of.

Is gap insurance worth it?

Well, that depends on your financial situation. Let’s consider a simple example:

You buy a new car that costs $20,000. You have no money for a down payment and finance the entire cost of the purchase – remember, this is a simple example so I’m ignoring all the other taxes and fees involved. A new car loses as much as 20% of its value the minute you drive it off the lot, so within seconds of leaving the dealership your shiny new car is worth $16,000.

With me so far? Good.

Now, on your way home something terrible happens. You get into an accident and the car is totaled. You now owe the bank $4,000. That’s the difference between the amount you owe the bank ($20,000) and the depreciated value of the car at the time of the accident ($16,000).

Gap insurance would pay the $4,000 difference on top of the $16,000 replacement cost.

In this example, gap insurance would definitely be worth it unless you had $4,000 in savings to pay for the difference on your own.

Is gap insurance a good idea?

In general, gap is a good idea if:

• You have less than 20% to make a down payment.

• You “roll” negative equity from a previous car loan into a new car loan.

• You finance for 60 months or more.

• You finance a vehicle that depreciates very quickly, such as a luxury, highly optioned or one of many domestic vehicles.

• You lease a vehicle.

Most of these cases revolve around financing too much, owing too much and not saving enough. Sadly, the type of people who find themselves in such a situation often have few real options but to purchase gap insurance.

Is gap insurance a scam, a rip-off or even necessary?

Strictly speaking, no. It is not a scam or a rip-off, though some car dealerships who offer it may be. It is also not strictly necessary as you can avoid needing it by doing any, or preferably all , of the following:

• Always pay at least 20% of the purchase price as a down payment

• Don’t buy more than you can afford.

• Have an emergency savings account with enough cash to cover any expenses not paid by your auto insurance.

• Don’t lease a vehicle.

• Always buy slightly used vehicles and never buy new.

By following the above, you will position yourself so that gap insurance would be a needless expense and you might even growth your net worth while you’re at it!

Related Posts:

• Minimalism vs. Simplicity – Are You Missing the Point?
• Is Pet Insurance Worth The Cost?
• Save Money on Insurance – Skip These Insurance Policies You Don’t Need!
• When is it Ideal to Drop Collision Auto Insurance?
• When To Switch Car Insurance.

eSmartTax is Calling All Johnsons.

This is a Sponsored Post written by me on behalf of eSmart Tax. All opinions are 100% mine.

No, really.

The folks at eSmart Tax are having a little fun while letting all American taxpayers file for free this year at www.eSmartTax.com.

They’re offering two ways to file your taxes online, for free:

1. By using their basic edition, free to anyone.
2. By using the deluxe edition and having the last name Johnson.

Yep, all Johnsons file free with the deluxe edition this year.

Why?

I had the same question, and here’s the answer..

A fun loving, big hearted Pittsburgh Steelers fan, and owner of a landscaping business used eSmartTax.com to file his taxes. His name is Daryl Johnson. He was plucked from his relative obscurity by the folks at eSmartTax.com to serve as their representative of the everyday man – their new spokesperson.

So to celebrate, eSmartTax.com is offering the deluxe version of their software for free to all persons with the last name of Johnson. I think it’s a pretty funny, and hence clever, bit of marketing too.

Here are some fun Johnson facts :

• According to the Census Bureau, there are 2,121,489 Johnsons in America

• The Daryl Johnson that is the eSmartTax.com spokesman was the only Daryl Johnson, out of out of 2,715 guys in the United States named Daryl Johnson, to file his taxes with eSmartTax.com

• Johnson is the 2nd most popular name in the US.

• 2 US Presidents were named Johnson.

• The US Congress has 4 Representatives named Johnson.

• The US Senate only has one Johnson.

• Cincinnati Bengals wide receiver Chad Ochocinco cannot receive a free tax refund, because he changed his name from Chad Johnson.

• Dwayne “The Rock” Johnson, Calvin Johnson, Magic Johnson, Keyshawn Johnson, Jimmy Johnson, Jimmie Johnson and Jack Johnson can all get a free Deluxe tax filing from eSmart Tax.

• Whoopi Goldberg’s real name is Caryn Johnson, so she is eligible for a free Deluxe tax filing on eSmartTax.com

Some facts about eSmartTax.com:

• The service is offered by Liberty Tax Service.

• Liberty Tax Service is fully accredited by the better business bureau with an A+ rating.

Here’s what the basic and deluxe versions offer.

Basic.

• Federal Tax Preparation and e-File – All the forms you need are right here, along with easy-to-follow, step-by-step instructions that make free e-filing effortless.

• Free Technical Support – eSmart is here to help. We quickly resolve technical questions including computer compatibility issues.

• IRS e-File Technology – Feel confident using eSmart; it’s the most secure way to get your refund. It’s also the fastest, compared to traditional paper filing.

Deluxe.

• Federal Tax Preparation and e-File – All the forms you need are right here, along with easy-to-follow, step-by-step instructions that make free e-filing effortless.

• Free Technical Support – eSmart is here to help. We quickly resolve technical questions including computer compatibility issues.

• eSmart Refund Maximizer – We review your information line by line and look for opportunities that lead to additional tax reductions and greater refunds.

• CPA Audit Assistance – If you get audited by the IRS, contact Customer Support, and a Liberty Tax CPA audit specialist will be assigned to your case to support you throughout the process.

• Carry Forward Data – If you e-filed your return with eSmart last year, you can easily transfer data from last year’s return into this year’s return for faster, easier filing. To take advantage of this feature simply log in with the same username and password as last year and leave the rest to us.

• Compare “What If” Scenarios – Bought a new house, got married, went to college, had some children, or started a new business this year? Each situation can change your tax liability. Run “what if” scenarios to be certain you’re getting the best possible outcome.

I’ll leave you to figure out who the 2 presidents were and wonder what the 1st most popular name in the U.S. is, but remember – you don’t have to be a Johnson to get the basic level e-file for free.

Related Posts:

• Tax Time: Last Minute List of Overlooked Deductions.
• Tax Time: Kiplinger’s “Do It Yourself Pay Raise” (Video).
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• How to Get Your Tax Refund Now!
• How Warren Buffett’s Tax Rate is Lower Than His Secretary’s.

How To Negotiate An Extended Auto Warranty.

I’ve blogged about various after market extended auto warranties and why I think they’re bad deals, but today I thought I’d share some tips on negotiating an extended warranty from a dealer.

Just to be clear, I still think it’s best to keep some money aside in your own high yield savings account for any unexpected repair bills. That way, you keep the interest earned and the money in the event that the odds work out in your favor (as they are likely to) and you end up not end up needing a costly repair. But I realize that’s not always possible, and there are times when extended auto warranties make sense – from the right vendor.

Anyway, this article is not about why I think many extended warranties aren’t worth the money, so on with the post.

This post is specifically focused on that stage of the car buying game where you’ve finished with the salesman, and you’re guided toward the Finance and Insurance Office. This is where the up-sell magic happens.

The F&I Office.

The Finance and Insurance Office is home to the F&I guy, who’s job is to sell you alarms, maintenance plans,GAP insurance,tinted windows, VIN etching (a theft-deterrent service) and warranties. In fact, this is where many dealers make their money.

But just because the dealer makes money on these extra options, doesn’t mean they aren’t worth a price… the trick is figuring out how much is the right price.

Here are some things to note about the options often offered by the Finance and Insurance Office:

• Be aware of the menu.
• Be mindful of compromise.
• Be a good student and study the market.

Be aware of the menu.

Dealers have gotten onboard the menu marketing concept and now offer “plans” or “packages”, such as the “gold package”, that bundle many extra options together. The dealer is generally going to bundle less profitable options with more profitable one, so those options lose less money. As a buyer, you should be aware that these packages can be broken up if the dealer is really interested in making a sale and the buyer is adamant about wanting specific items and not the whole package. Be clear and consistent in your request to unbundle the extended warranty. If all else fails, be prepared to walk away and buy elsewhere.

Be mindful of compromise.

When negotiating for an extended auto warranty, keep in mind that the dealer still needs to make a profit. It may seem simplistic, but many people get so caught up in not being taken advantage of that they end up trying to take advantage of the dealer instead! True negotiation is a compromise where both parties profit at least a little.

Be a good student and study the market.

Comparison shop at several dealers, and try to get a general idea of what the local market price is for the product you want. Be consistent with your search. For example, If you want a 5 year/100,000 mile warranty then be sure to ask each dealer what they would charge for that specific product. Don’t be afraid to ask the dealer what his cost is – what he pays for the product. Sometimes a dealer will quote what seems like a good deal, but once you’ve got the quotes from other nearby dealers you discover that his “cost” is much higher than the others. This could be a sign that he’s trying to take you for a ride.

Be up front with the dealer. Tell him what make and model of car you’re looking to buy, and that where you buy the car depends upon the best deal, including the extended warranty. If you get a good quote, be sure to get it in writing so they can’t claim they told you something different when you walk into the dealership.

Related Posts:

• Minimalism vs. Simplicity – Are You Missing the Point?
• Is Pet Insurance Worth The Cost?
• 7 Tips for Cutting Spending and Putting Cash Back in your Pocket. (video)
• How to Waste Your Money in 15 Easy Steps.
• It Pays to Bundle and Bargain!

Up Next: A Social Security Bailout?

Yes, you read that right. The U.S. taxpayer could be on the hook yet again for another bailout in the next year or so – this time for Social Security! This according to an article by Allan Sloan (Fortune magazine’s senior editor at large).

It’s long been common knowledge that the Social Security system is deeply mismanaged, and headed for bankruptcy some time in the future, but it looks like the future may be now. A report from the Congressional Budget Office (CBO) shows that Social Security is taking in less in taxes than it is spending on benefits for the first time in 25 years.

According to Sloan’s analysis of the CBO report, the Social Security program will be $28 billion in the hole this fiscal year, which ends Sept. 30.

The current revision of the date at which the SS program begins it’s transition from surplus to perpetual deficit is the result of the recent recession, but it’s the spending in Washington D.C. that further compound the issue.

When the fund ran into the red 25 years ago, the last time the country experienced a recession of this magnitude, the problem was “fixed” by a combination of benefit cuts and tax hikes. That essentially led to a short term surplus that has now run dry.

As with some much in Washington these days, the problem is a lack of leadership. Instead of fixing the problem when they had the chance, our elected officials saw fit to use that Social Security surplus to fund other – unrelated – government spending. And now the surplus has run dry, leaving us with an under funded retirement program, and other programs un-funded since they were paid for by the surplus!

With trillion dollar deficits for the foreseeable future, a record number of Americans without jobs and a greater number of Americans forced into early retirement and newly dependent on the Social Security program, it’s hard to imagine where the money is going to come from; and quite frankly I shudder to think of the possibilities.

Time will tell if our current crop of leaders have what it takes to actually fix the problem, but given the recent spate of bailouts, reckless spending, and hikes to the debt ceiling by congress, the prospect looks dim indeed.

Related Posts:

• Is the Recession Racist?
• 70 Year Old Free Spirit Offers Lessons on Retirement Planning.
• Is Your House More Important Than Your Family?
• European Nations Start Confiscating Private Retirement Plans!
• Should I Borrow From My 401K?