So you go out and buy a new car. What do you do about your insurance?
First, most people do not know that you have a set time to report this to your insurance company. Some policies give you 30 days, but some as few as 7 days to report it to your insurance company. And, some policies do not give you any coverage until you report the new vehicle. So, you should report the vehicle as soon as you buy it.
But what happens if you have coverage and your car is declared a total loss? You may want to consider GAP coverage. GAP coverage pays the difference between the value of your car and what you owe on it. So, if you buy a car for $20,000 and you get in an accident the next month, the car may be worth only $15,000. But you may have financed $20,000 or more. The difference is what is paid for by GAP insurance.
About.com has a Q&A about GAP. Basically, the rule is that if you are going to finance a car and put down less than 20%, you should consider GAP coverage. Its fairly inexpensive but provides an important coverage.