Jeffrey Wade
Gap insurance is a supplementary type of car insurance that covers the difference between the amount owed on a financed or leased vehicle and its actual market value in the event of an accident or theft. While gap insurance can be beneficial when trading in a vehicle with negative equity, it does not cover negative equity when trading in for a more expensive vehicle. In other words, gap insurance will not help with the negative equity carried over from the previous loan into a new loan for a different vehicle.
| Characteristics | Values |
|---|---|
| Type of insurance | Supplementary insurance |
| What it covers | The gap between what you owe on a financed or leased vehicle and the car's actual market value if it's totaled in an accident |
| When to get it | When your vehicle loan balance is likely to exceed the actual value of the car |
| Cost | $400 to $700 when purchased from a car dealership; $20 to $40 when added to an existing car insurance policy |
| When it kicks in | When your primary car insurance company pays out the car's actual cash value under collision or comprehensive insurance |
| What it doesn't cover | Engine failure, transmission failure, death, your car insurance deductible, overdue payments and late fees on your car loan or lease, extended warranties, carry-over balances from previous loans or leases, lease penalties for high mileage or excessive use, charges for credit insurance connected to the loan, a down payment for a new car |
What You'll Learn
- Gap insurance covers the difference between the remaining value of your vehicle loan and the car's actual cash value
- It is a supplementary type of car insurance
- It is optional and not required by any insurer or state
- It is more useful in the first few years of vehicle ownership
- It does not cover engine or transmission failure
Gap insurance covers the difference between the remaining value of your vehicle loan and the car's actual cash value
Gap insurance is a type of coverage that helps pay the difference between what you owe on your car loan and what your car is worth if it's totaled in an accident. It is a supplementary type of car insurance that covers the gap between what you owe on a financed or leased vehicle and the car's actual market value if it's damaged, destroyed, or stolen.
Gap insurance is particularly useful if you have a large car loan or a vehicle that depreciates quickly. It is also beneficial when trading in a vehicle with negative equity, as it can help offset some of those costs when rolling them into another loan or finance agreement. For example, if you owe $20,000 on your loan but your insurance company assesses the value of your vehicle at $15,000, you now owe $5,000. Gap insurance will pay that $5,000 difference so you don't have to.
It's important to note that gap insurance does not cover your car's depreciation if you want to trade up to a more expensive vehicle. It also won't cover any deductibles or costs associated with vehicle repairs and injuries resulting from an incident. Additionally, gap insurance won't transfer to your new vehicle; you'll need to purchase a new policy for the new car.
The cost of gap insurance depends on various factors, such as the make and model of the vehicle, how fast it depreciates, your age, and previous claims. It typically costs between $400 and $700 when purchased from a car dealership and $20 to $40 when added to an existing car insurance policy.
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It is a supplementary type of car insurance
Guaranteed Asset Protection (GAP) insurance is an optional product that covers the difference between the amount you owe on your auto loan and the amount your insurance company pays out if your car is stolen or totaled. It is a supplementary type of car insurance that covers the gap between what you owe on a financed or leased vehicle and the car's actual market value if it's totaled in an accident.
When you buy or lease a new car, it starts to depreciate in value immediately. Most cars lose 20% of their value within a year. Standard auto insurance policies only cover the depreciated value of a car, meaning they pay the current market value of the vehicle at the time of a claim. This can leave a gap between the amount paid out by your insurance and the amount you owe on your auto loan.
GAP insurance is intended to cover this difference. It is particularly useful if you have made a small down payment (less than 20%), financed for 60 months or longer, leased the vehicle, purchased a vehicle that depreciates faster than average, or rolled over negative equity from an old car loan into the new loan.
GAP insurance is available from car insurance companies, banks, credit unions, and car dealerships. It typically costs between $20 to $40 per year when added to an existing car insurance policy, and between $400 and $700 when purchased from a dealership.
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It is optional and not required by any insurer or state
While gap insurance is a valuable option for car owners who need an extra layer of financial protection, it is not a requirement. Gap insurance is optional and not mandatory, meaning you can choose whether or not to include it in your insurance policy. It is not required by any insurer or state, and the decision to purchase it depends on your individual needs and circumstances.
Gap insurance is a supplementary type of car insurance that covers the difference between the amount you owe on a financed or leased vehicle and its actual market value if it is deemed a total loss, typically in the event of an accident or theft. It is designed to provide financial protection and peace of mind for those who may owe more on their vehicle than its current value.
The need for gap insurance often arises when there is a "gap" between the amount owed on a car loan or lease and the vehicle's actual worth. This situation is more common during the first few years of vehicle ownership, as most cars depreciate rapidly during this period. However, the decision to purchase gap insurance should be made based on factors such as the age and resale value of the car, the length of the loan, and the amount of the down payment.
While gap insurance can provide valuable protection, it is not a necessity for everyone. It is essential to carefully consider your circumstances and assess whether the benefits of gap insurance align with your needs. Factors such as the age and value of your vehicle, the amount you owe on your loan or lease, and your ability to absorb any potential financial loss should be taken into account when deciding whether to opt for gap insurance.
Additionally, it is worth noting that gap insurance has specific limitations. It does not cover deductibles, vehicle repairs, injuries, or mechanical issues such as engine or transmission failure. It is solely intended to bridge the financial gap between the amount owed and the vehicle's value in the event of a total loss. Therefore, when considering gap insurance, it is crucial to understand what it covers and what it does not.
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It is more useful in the first few years of vehicle ownership
Gap insurance is a supplementary type of car insurance that covers the difference between what you owe on a financed or leased vehicle and the car's actual market value if it's totaled in an accident. It is more useful in the first few years of vehicle ownership as cars can depreciate rapidly. According to the Insurance Information Institute, many vehicles depreciate by 20% or more within the first year of ownership. If you don't make a large down payment on your car, the amount you owe in car payments can quickly exceed your car's value.
Gap insurance is typically inexpensive, costing between $20 to $700 per year when added to an existing car insurance policy. However, if you buy gap insurance from a dealership, it can cost hundreds of dollars a year. It is worth noting that gap insurance is not necessary for everyone. If you are not financing or leasing your car, there is no need to purchase gap insurance. Additionally, if you have made a substantial down payment or are paying off your car loan in a short period, you may not need gap insurance as the amount you owe is likely to be less than the value of your vehicle.
In general, most new car buyers benefit from gap coverage while the vehicle is less than three model years old. Gap insurance can provide peace of mind and financial protection, ensuring that you are covered in the event of a total loss. It is important to review your loan terms and compare them to your car's estimated value to determine if gap insurance is right for you.
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It does not cover engine or transmission failure
Gap insurance is a supplementary type of car insurance that covers the difference between the amount owed on a financed or leased vehicle and its actual market value in the event of theft or an accident that totals the vehicle. It is important to note that gap insurance does not cover engine or transmission failure.
Gap insurance is intended to protect your finances in the event of a total loss. It covers the "gap" between the amount you owe on your car loan and the car's actual value, which can fluctuate due to depreciation. This type of insurance is particularly useful for car owners who need an extra layer of financial protection. For example, if your car is totalled in an accident and is worth less than the remaining loan balance, gap insurance can help make up the difference.
While gap insurance can provide financial peace of mind, it is essential to understand its limitations. Gap insurance does not cover engine or transmission failure. It is designed to protect you financially only in the event of a total loss, such as an accident or theft of your vehicle. Mechanical issues or repairs are not covered under gap insurance.
Additionally, gap insurance does not cover personal injuries, funeral costs, or accidental death. It also does not cover your car insurance deductible, overdue payments, late fees, extended warranties, or lease penalties. Gap insurance is specifically intended to cover the financial gap between the value of your vehicle and the amount owed on a loan or lease in the event of a total loss.
When considering gap insurance, it is important to review the specific terms and conditions of the policy. While it can provide valuable financial protection in certain situations, it does not cover all potential issues with your vehicle. Engine and transmission failure are not included in the coverage provided by gap insurance.
In summary, while gap insurance can be beneficial in certain circumstances, it is crucial to understand that it does not cover engine or transmission failure. It is designed to protect you financially in the event of a total loss and not for mechanical repairs or issues.
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Frequently asked questions
No, GAP insurance does not cover negative equity when trading in your car. It covers the "gap" between the actual cash value (ACV) of your vehicle and the loan amount when your primary insurance company has found the vehicle to be a total loss, or if the vehicle is stolen and not recovered.
GAP insurance is a supplementary type of car insurance that covers the difference between what you owe on a financed or leased vehicle and the car's actual market value if it's totalled in an accident.
You can typically buy GAP insurance from car insurance companies, banks and credit unions. Most dealers also offer GAP insurance for both leased and financed cars at the time of purchase, but rates and coverage vary considerably.
