Gap Insurance: Limited Or Unlimited?

Guaranteed Asset Protection (GAP) insurance, or guaranteed auto protection insurance, is an optional coverage that drivers can add to their existing car insurance policies. It covers the gap between the amount owed on a vehicle and its actual cash value (ACV) in the event it is totaled, stolen, or rendered a total loss from a covered claim. While it is not required by law, gap insurance is often required by lenders and lessors. The cost of gap insurance varies depending on where you buy it, with dealerships and banks charging a lump sum of up to $700 and insurance companies charging as little as $3 per month.

Gap insurance covers theft

Each state has different rules on what constitutes a total loss, based on the estimated price of repairs compared to the car's value. Gap insurance companies usually require a waiting period of around 30 days before a stolen car can be deemed impossible to recover. After this waiting period, most gap insurance companies will ask for a copy of the police report detailing the theft before agreeing to pay for a claim.

To receive a gap insurance payout for a stolen car, you will need to get a copy of the police report, file a claim with your standard insurer, and then file a claim with your gap insurance provider. Gap insurance companies thoroughly investigate claims for stolen cars to prevent fraud, so expect a wait before receiving a payout.

It doesn't cover overdue lease/loan payments

Gap insurance is an optional type of car insurance that covers the difference between what a car is worth and what the driver owes on their auto loan or lease if the car is stolen or declared a total loss. It is important to note that gap insurance does not cover overdue lease or loan payments. This means that if you miss a payment on your lease or loan, gap insurance will not cover this amount.

Gap insurance is designed to protect drivers in the event of a total loss, such as a car-related catastrophe, theft, or some natural disasters. It covers the "gap" between the actual cash value of the vehicle and the remaining amount owed on the loan or lease. This type of insurance is especially useful if you have a low down payment, a long-term loan, or a car that depreciates quickly.

While gap insurance can provide valuable financial protection, it is important to understand its limitations. In addition to not covering overdue payments, gap insurance also does not cover repairs to your vehicle, the value of your car or loan balance if it is repossessed, rental cars, diminished value after an accident, or a down payment for a new car. It is important to carefully review the terms and exclusions of your gap insurance policy to understand what is and is not covered.

Overall, gap insurance can be a valuable tool to protect yourself financially in the event of a total loss of your vehicle. However, it is important to keep in mind that it does not cover overdue lease or loan payments, and there may be other exclusions depending on your specific policy.

It's not required by state law

Gap insurance is not required by state law. It is an optional coverage that can be added to an existing car insurance policy. However, if you have a loan or lease contract on your vehicle, your financial lender may require you to carry it.

Gap insurance covers the "gap" between the amount owed on a vehicle and its actual cash value (ACV) in the event it is totaled, stolen, or rendered a total loss from a covered claim. This can protect you from having to pay back your loan if you owe more than the car's depreciated value after your car is stolen or declared a total loss.

The cost of gap insurance varies depending on where you buy it. Dealerships and banks typically charge a lump sum of up to $700 for gap insurance, which is then added to your auto loan. This means you will also have to pay interest on the cost of the insurance. On the other hand, insurance companies usually charge a much lower rate, often around $20 to $40 per year, and include the cost in your regular premium payments.

When considering whether to purchase gap insurance, it is important to keep in mind that it is not required by state law. However, it may be required by your lender or lessor, especially if you have a long-term loan or lease, made a small down payment, or have a car that depreciates quickly. Additionally, gap insurance can provide financial protection and peace of mind in the event of a total loss, ensuring that you don't have to pay out of pocket for a vehicle you can no longer drive.

Overall, while gap insurance is not mandated by state law, it can be a valuable addition to your car insurance policy depending on your financial situation and the specifics of your vehicle loan or lease.

It's not worth it if you've paid off most of the loan balance

Gap insurance is optional car insurance that covers the difference between the amount owed on a vehicle and its actual cash value (ACV) in the event it is totaled, stolen, or rendered a total loss from a covered claim. It is generally not worth purchasing gap insurance if you have paid off most of the loan balance.

Gap insurance is intended to cover the "gap" between the amount owed on a vehicle and its actual cash value. This "gap" can occur when a vehicle is brand new or less than a year old, as these vehicles tend to depreciate quickly. According to CARFAX, a new car usually loses at least 10% of its value in the first month after purchase and 20% of its value in the first year. As a result, if a vehicle is totaled or stolen, the owner may owe more than the car's depreciated value.

However, as the owner pays off the loan and the vehicle depreciates over time, the "gap" between the amount owed and the vehicle's value decreases. Therefore, if most of the loan balance has been paid off, there may not be a significant "gap" for gap insurance to cover. In this case, purchasing gap insurance may not be worth the cost.

Instead of purchasing gap insurance, individuals who have paid off most of their loan balance may consider alternative options to cover any remaining difference between the amount owed and the vehicle's value. For example, they could use their savings or take out a low-interest loan to cover this difference. Additionally, they could explore other types of insurance, such as new car replacement insurance or better car replacement coverage, which offer similar protection to gap insurance.

Overall, while gap insurance can be valuable for individuals who have recently purchased a vehicle and owe more than the vehicle's value, it may not be necessary for those who have paid off most of their loan balance. In this case, individuals should assess their financial situation and consider alternative options to ensure they have adequate protection in the event of a total loss or theft of their vehicle.

It's not the same as full coverage

Gap insurance is not the same as full coverage. Full coverage is commonly defined as the combination of a state's minimum required insurance, comprehensive insurance, and collision insurance. Gap insurance is an optional add-on to full coverage. It is designed to cover the difference between the actual cash value of a vehicle and the remaining amount on its loan or lease in the event of a total loss. This can occur when the gap between the amount owed and the vehicle's value is negative, i.e., when the amount owed is more than the vehicle's value.

Gap insurance is not mandatory but may be required by lenders or lessors. It is intended to protect drivers who might otherwise be stuck paying for a vehicle they can no longer drive. It is especially useful for those who have made a small down payment on their vehicle, have a long-term loan, or own a car that depreciates quickly.

Full coverage, on the other hand, is a combination of coverages that are often required. These include liability insurance, which covers damage and injuries caused to others, and collision insurance, which covers damage to your vehicle resulting from a collision. Comprehensive insurance is also usually bundled with liability and collision insurance. It covers damage to your vehicle resulting from non-collision incidents, such as theft, vandalism, or natural disasters.

While full coverage includes collision and comprehensive insurance, it only covers the actual cash value of the vehicle, not the amount owed on a loan or lease. Gap insurance can be added to full coverage to ensure that drivers are not left with a large bill in the event their vehicle is totaled or stolen.

Frequently asked questions