Gap Insurance: Death Benefit

Gap insurance, or guaranteed asset protection, does not cover death. Instead, it covers the difference between your car's current market value and the price you're still paying in loans. This type of insurance is useful if you have a large car loan or a vehicle that quickly depreciates in value.

Gap insurance does not cover death

Gap insurance, also known as Guaranteed Auto Protection (GAP), is a type of insurance that covers the difference between the amount owed on a car loan and the car's market value in the event of total loss or theft. While gap insurance can provide financial protection in these scenarios, it is important to understand that it does not cover death. Here are some key points to consider regarding gap insurance and its limitations in the event of the policyholder's death:

What Gap Insurance Covers

Gap insurance is designed to protect individuals who owe more on their car loan than the current market value of their vehicle. This situation is often referred to as being "upside down" on a loan. In the event of a total loss or theft, standard car insurance will typically only cover the car's market value, leaving the policyholder with a gap between what they owe and what they receive from the insurance payout. This is where gap insurance comes into play. It covers this difference, ensuring that individuals are not left with a significant financial burden.

What Gap Insurance Does Not Cover

While gap insurance can provide financial protection in the event of total loss or theft, it is important to understand its limitations. Gap insurance does not cover death. In the unfortunate event of the policyholder's death, gap insurance will not provide any death benefits or cover funeral costs. Instead, the responsibility for any remaining loan payments will typically fall to any co-signers or joint owners of the loan. If there are no co-signers or joint owners, the vehicle becomes an asset of the deceased's estate, and an executor will determine how to continue paying off the loan.

When to Consider Gap Insurance

Gap insurance is particularly relevant when individuals find themselves in specific financial situations. For example, if you are financing a vehicle for 60 months or more, leasing a vehicle, putting down 20% or less of the purchase price, or rolling negative equity from an old car loan into a new one, gap insurance can be a wise decision. It is also worth considering if you drive more than 15,000 miles per year or if the car you purchased has an above-average depreciation rate. These factors can increase the likelihood of owing more on your loan than the car's value, making gap insurance a valuable form of protection.

Alternatives to Gap Insurance

While gap insurance can be beneficial in certain circumstances, it is not the only option for financial protection. Some alternatives to consider include better car replacement coverage, which offers to replace your old car with a newer or better model, and new car replacement coverage, which provides enough funds to replace your totaled vehicle with a new car of the same make and model. Additionally, putting more money down on your vehicle purchase, upgrading your insurance policy to a comprehensive plan, or inquiring about loan and lease payoff insurance can also provide similar financial safeguards without the need for separate gap insurance.

It covers the difference between the value of the car and the loan balance

Gap insurance covers the difference between the value of the car and the loan balance. This type of insurance is particularly useful if you have a large car loan or you bought a vehicle that quickly depreciates in value.

Gap insurance is optional car insurance coverage that helps bridge the financial gap for drivers whose car loan balance is more than the value of their vehicle if it is stolen or totaled. It is also known as Guaranteed Auto Protection (GAP) and covers the difference between the depreciated value of the car and the loan amount owed if the car is involved in an accident.

Gap insurance is useful for people who put no money down and choose a long payoff period since they may owe more than the car's current value. It is also useful for those who have a protracted loan payoff period. It is recommended for those who have financed their vehicle for 60 months or more, leased their vehicle, put down 20% or less of the purchase price, or bought a vehicle that depreciates faster than average.

Gap insurance covers the difference between the compensation you receive after a total loss of your vehicle and the amount you still owe on a car loan. It is important to note that gap insurance does not cover the owner or driver's death.

It is optional but recommended for lease agreements

Gap insurance, or guaranteed asset protection, is optional but recommended for lease agreements. It is designed to protect drivers who are "upside down" on their auto loans, meaning they owe more than the car's current market value. This type of insurance is particularly relevant for lease agreements because leased vehicles are often driven off the lot and immediately lose value due to rapid depreciation.

When a leased car is totalled or stolen, standard car insurance will only cover the vehicle's actual cash value or market value, which may be significantly less than the remaining balance on the lease. Gap insurance bridges this gap by covering the difference between the insurance payout and the outstanding lease balance. This can save the driver from having to pay out of pocket to cover the shortfall.

While gap insurance is optional, it is generally a good idea for lease agreements to protect against financial losses in the event of a total loss or theft of the vehicle. It is important to note that gap insurance does not cover the owner's or driver's death and is separate from life insurance policies.

When considering gap insurance for a leased vehicle, it is recommended to compare prices and coverage options from different providers, including insurance companies and dealerships. Additionally, reviewing the lease agreement is essential to determine if gap insurance is already included and to understand the specific terms and conditions.

It covers theft if the vehicle is declared a total loss

Gap insurance covers theft if the vehicle is declared a total loss. This means that if your car is stolen and not recovered, or if it is recovered but has sustained enough damage to total it, gap insurance will pay for the difference between the car's actual cash value (ACV) and the auto loan or lease balance.

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.

If your car is recovered after being stolen, gap insurance will only pay out if the vehicle is considered "totaled". Whether a vehicle is considered "totaled" depends on the state. Each state has different rules on what constitutes a total loss, based on the estimated price of repairs compared to the car's value.

If your insurance company declares your stolen car a total loss, they may help pay its fair market value. However, this payout may be less than what you still owe on the car. In this case, gap insurance can help cover the remaining balance.

It is important to note that gap insurance is not always necessary. If you made a large down payment on your car, you may not need gap insurance. Additionally, if you are paying off your car loan in less than five years, gap insurance may not be necessary.

To determine if you need gap insurance, you can check the National Automobile Dealers Association (NADA) guide or Kelley Blue Book to see how much your car is worth. Compare this value to your loan balance. If your loan balance is less than the car's value, you don't need to worry about the gap.

It does not cover engine or transmission failure

Gap insurance is an optional product that covers the difference between the amount you owe on your auto loan and the amount the insurance company pays if your car is stolen or totalled. It is important to note that gap insurance does not cover engine or transmission failure. This type of insurance is specifically designed to protect you financially when you owe more on your car than its current value.

When you buy a new car, it starts to depreciate in value as soon as it leaves the dealership. Most cars lose 20% of their value within the first year. If you made a small down payment and chose a long payoff period, you may owe more than the car's current value. In this case, if your car is totalled in an accident or stolen, standard car insurance will only pay up to the current value, leaving you with a financial gap.

Gap insurance covers this difference, but it is important to understand that it does not cover engine or transmission failure. Engine and transmission repairs can be costly, and not having coverage for these issues could leave you with a significant financial burden. It is crucial to understand the limitations of gap insurance to ensure you have the necessary coverage for your vehicle.

While gap insurance can provide financial protection in certain situations, it is not a substitute for comprehensive car insurance. Comprehensive insurance covers a wide range of issues, including collision, vandalism, and natural disasters. However, like gap insurance, comprehensive insurance also has its limitations and does not cover regular maintenance or repairs for engine and transmission issues.

To ensure you have the necessary coverage, it is essential to carefully review your insurance policy and understand what is included and excluded. If you are concerned about the cost of potential engine or transmission repairs, consider looking into extended warranties or specific coverage for these components. By understanding your insurance coverage and taking proactive steps to protect yourself financially, you can have peace of mind knowing that you are prepared for unexpected vehicle-related expenses.

Frequently asked questions