Alyssa Lane
Gap insurance is an optional auto insurance coverage that helps pay your car loan if your car is lost or stolen and you owe more than the vehicle is worth. It is not a necessity for every car owner. If you paid for your car with cash, it’s probably not worthwhile to get gap insurance. However, if you’re at risk of becoming upside down on your car loan, gap insurance can be a worthwhile investment that protects your wallet. Gap insurance is typically purchased at the time you buy comprehensive and collision coverage, though you might be able to get coverage after you buy a vehicle.
| Characteristics | Values |
|---|---|
| What is gap insurance? | Optional coverage that pays the difference between what your vehicle is worth and how much you owe on your car loan at the time it’s stolen or totalled. |
| What does gap insurance cover? | The remaining amount on your loan in the event of a total loss, whether that’s the result of an accident or vehicle theft. |
| How does gap insurance work? | If your vehicle is stolen or totalled, gap insurance will pay the difference between the amount your insurance covers and the amount you owe on your auto loan. |
| Do you need gap insurance? | If your vehicle is not financed, there is no need for gap coverage. If you do finance your vehicle, gap coverage can be beneficial but depends on how much you drive and how quickly your car depreciates. |
| Is gap insurance worth it? | If you are not financing or leasing your car, there is no reason to purchase gap insurance. But gap coverage can be worth it if you made a small down payment, have a long finance period or purchased a vehicle that depreciates quickly. |
| How much does gap insurance cost? | The cost of gap insurance varies but is usually inexpensive. If added to a car insurance policy that includes collision and comprehensive insurance, it typically increases the premium by around $20 per year. |
| Where to buy gap insurance? | You can get gap insurance from most major car insurance companies, though not all offer it. You can also get gap coverage from your dealership or auto lender when you purchase the vehicle. |
What You'll Learn
- Gap insurance covers the difference between the value of a car and the loan amount owed on it
- It is optional and not required by lenders
- It is intended for drivers who are upside down on their car loan
- It is not required if a car is paid for in cash
- It is typically purchased with comprehensive and collision coverage
Gap insurance covers the difference between the value of a car and the loan amount owed on it
Gap insurance, or Guaranteed Asset Protection insurance, is an optional coverage that can be added to a car insurance policy. It covers the difference between the value of a car and the loan amount owed on it, in the event that the car is stolen or declared a total loss after an accident.
Imagine your car is three years old and gets into a bad accident. You take it to a mechanic and learn that it is totaled. You have collision insurance, but there’s a problem: your car’s actual cash value is only $20,000, but you still owe $25,000 in payments. Gap insurance will cover the difference (minus your deductible) and bridge the financial gap.
Who Needs Gap Insurance?
Not everyone needs gap insurance. You only need it if you owe more on your car loan than the car is worth. If you are currently making car loan payments, calculate the loan balance and weigh it against your car’s current cash value. If there is a gap, you should consider getting gap insurance.
Drivers whose car loan or lease agreement requires gap insurance will also need this coverage. Some lease providers may already include gap insurance in the price of the lease.
The cost of gap insurance varies. It depends on factors such as the current value of your car, the state you live in, and your previous car insurance claims. On average, gap insurance costs around $20-$40 per year when bundled with your existing policy, and $200-$300 when purchased independently.
Where Can I Buy Gap Insurance?
You can typically buy gap insurance from car insurance companies, banks, and credit unions. It is generally a better deal to buy gap insurance from an insurance company, as it will cost you less. Buying gap insurance from a car dealership is more expensive in the long run because you will be paying interest on it as part of your loan.
Gap Insurance: PCP Peace of Mind?
You may want to see also
It is optional and not required by lenders
Gap insurance is optional car insurance that covers the difference between the amount you owe on your auto loan and the amount your insurance company pays if your car is stolen or totaled. While it is not required by lenders, it can be a good idea to have it in certain situations.
Firstly, gap insurance only applies if you have a car loan or lease. If you own your car outright, you don't need gap insurance. However, if you are still making payments on your vehicle, gap insurance can provide valuable protection.
The main benefit of gap insurance is that it covers the "gap" between the actual cash value of your car and the amount you still owe on your loan or lease. This gap can be significant, especially if your car is new and has depreciated quickly. In the event that your car is totaled or stolen, standard auto insurance will only pay up to the current market value of the vehicle. Gap insurance ensures that you are not left owing thousands of dollars on a car that is no longer usable.
Another situation in which gap insurance can be useful is if you have a long loan term. When you spread your car loan payments over a long period, it takes longer to build up equity. As a result, you may owe more on your loan than your car is worth for a longer period of time.
Additionally, gap insurance can be worth considering if you chose a car make and model that depreciates quickly. Some vehicles lose value more rapidly than others, and gap insurance can help protect you from being upside down on your loan in this case.
It's important to note that gap insurance is not required by lenders. In fact, you can only purchase gap insurance if your lender allows it. Some lenders may require you to have comprehensive and collision coverage, but gap insurance is usually optional. If you decide to purchase gap insurance, be sure to shop around and compare quotes from multiple insurance companies, as prices can vary.
Vehicle Tax and Insurance: Who Pays?
You may want to see also
It is intended for drivers who are upside down on their car loan
Gap insurance is intended for drivers who are upside down on their car loan. This means that the driver owes more on their car loan than the car is worth. This situation can occur if the driver has a longer-term loan and their vehicle has significantly depreciated in value, or if they took out a loan with a high interest rate. Gap insurance can help bridge the financial gap for these drivers by paying the difference between what their vehicle is worth and how much they owe on their car loan. This coverage supplements a comprehensive or collision car insurance payout, which only covers up to the vehicle's current market value.
Being upside down on a car loan can put drivers in a financially precarious position. If their car is totaled in an accident, the insurance payout may not be enough to cover the remaining loan amount. Additionally, if they want to downsize to a cheaper car or trade in their vehicle for a different model, they will have to pay off the negative equity.
To get out of an upside-down car loan, drivers can consider making extra payments towards the loan, refinancing the loan with a shorter loan term, or selling the vehicle. They can also purchase gap insurance, which will cover the difference between the insurance settlement and the amount owed on the loan in the event of a total loss.
Just Auto Insurance: Legit or Scam?
You may want to see also
It is not required if a car is paid for in cash
Gap insurance is an optional form of coverage that is not required if a car is paid for in cash. It is designed to protect drivers who owe more on their car than the car is worth, by covering the difference between the depreciated value of the car and the loan amount owed if the car is involved in an accident. This type of insurance is typically added to a comprehensive or collision car insurance policy and is meant to supplement the primary insurance payout in the event of a total loss.
If a car is paid for in cash, there is no loan amount to be covered by gap insurance. Therefore, it is not necessary to purchase this additional coverage. However, it is still important to have a comprehensive or collision insurance policy to protect against accidents, theft, or other damage.
When considering whether or not to purchase gap insurance, it is essential to understand the terms of your loan or lease agreement. In some cases, lenders or leasing companies may require gap insurance, especially if the vehicle is expected to depreciate quickly. Additionally, gap insurance may be required if you have rolled over negative equity from an old car loan into the new loan.
It is worth noting that gap insurance only covers the difference between the value of the car and the loan amount in the event of a total loss, such as an accident or theft. It does not cover mechanical issues, engine failure, transmission failure, or other repairs. The cost of gap insurance can vary depending on whether it is purchased through a car insurance company or a dealership, with insurance companies typically offering lower rates.
Gap Insurance: Refinancing Risks
You may want to see also
It is typically purchased with comprehensive and collision coverage
Gap insurance is typically purchased alongside comprehensive and collision coverage. Comprehensive and collision insurance are both optional in Florida, but a car loan company may require you to have them until your loan is paid off.
Comprehensive insurance covers damage to your vehicle that is unrelated to a vehicle collision. For example, if a tree falls on your car, comprehensive insurance will cover the cost of repairs. It also covers damage from vandalism, fire, and falling objects.
Collision insurance covers any damage sustained to a vehicle in a car crash, including collisions with another vehicle or a stationary object, such as a streetlight.
Both comprehensive and collision insurance normally involve paying an insurance deductible, which is the amount you pay before the insurance company starts paying for repairs. The lower the deductible, the higher your insurance premiums will be.
Gap insurance is purchased in addition to comprehensive and collision insurance. It covers any money you owe that exceeds your insurance company's maximum payout. This can include the difference between the current value of your car and the amount you still owe on your loan.
Fleet Insurance: Vehicles Count
You may want to see also
Frequently asked questions
Gap insurance, or guaranteed asset protection, is an optional coverage that pays the difference between what your vehicle is worth and how much you owe on your car loan at the time it's stolen or totaled.
Gap insurance is not necessary if you don't have a car loan or lease, or if your loan is less than the value of your car. However, if you lease a vehicle or have a loan, you may want to consider gap insurance if you cannot afford to pay the difference between the amount you owe and the car's value in the event of theft or total loss.
Gap insurance covers the remaining amount on your loan after a total loss claim, whether due to theft or an accident that results in your car being totaled. It pays out after comprehensive and collision coverage, which are typically required when you buy or lease a new vehicle.
