Insurance Contact Gaps: What You Need To Know

GAP insurance, or guaranteed asset protection, is an optional add-on to your auto insurance policy. It covers the difference between the current value of your vehicle and the amount you owe on it if it is stolen or written off. This type of insurance is useful if you have a long finance period, have made a small down payment, or have a vehicle that depreciates quickly. GAP insurance can be purchased from your car dealer or from your car insurance company, and it usually costs around $40-$60 per year.

Gap insurance covers the difference between a vehicle's value and the loan balance if it's stolen or totalled

Gap insurance is a type of auto insurance coverage that covers the difference between the value of a vehicle and the amount still owed on a loan or lease if the vehicle is stolen or deemed a total loss. This type of insurance is optional and not required by any state, but it can be valuable if you find yourself owing more on your car loan than the car is worth.

When a car is deemed a total loss, it means that the insurance company has determined that the cost of repairing the vehicle would be higher than the vehicle's value. Each state has its own rules for calculating this, but generally, if the repair cost exceeds a certain percentage of the car's value (such as 80%), the car is considered a total loss. In this case, the insurance company will pay the car's actual cash value (ACV) at the time of the accident, minus any deductible.

If you don't have gap insurance and your car is totalled or stolen, you will be responsible for paying the remaining balance on your loan or lease out of pocket. Gap insurance can help cover this difference, protecting you from having to pay for a car that you can no longer drive. It's important to note that gap insurance doesn't cover other expenses such as rental cars after an accident or damage to other people's property.

To qualify for gap insurance, you must have comprehensive and collision coverage on your policy. Additionally, gap insurance must be purchased shortly after buying or leasing a new car, usually within 30 days or when the vehicle is less than a year old. It's also important to check with your insurance company before purchasing gap insurance to understand what is covered and what is not. Some policies, for example, only cover factory parts and may not include additional charges related to the loan.

In summary, gap insurance can provide valuable protection if your car is stolen or totalled, ensuring that you don't owe more on your loan than the car's value. However, it's important to understand the limitations of this coverage and ensure that you have the necessary comprehensive and collision coverage in place as well.

It's not required by law, but may be required by lenders or lessors

Gap insurance is not required by law, but it may be required by lenders or lessors. This is because gap insurance covers the difference between the compensation received after a total loss of a vehicle and the amount still owed on a car loan. Without gap insurance, collision and comprehensive insurance will only cover the vehicle's cash value, leaving the owner to pay the rest of the loan themselves.

Gap insurance is particularly useful for those who have a low down payment (less than 20%), a long-term loan (longer than 4-5 years), or a car that depreciates in value quickly, such as a sports car or an electric vehicle. It is also useful for those who have rolled over negative equity from a previous car loan into their current loan.

Gap insurance can usually be purchased directly from a dealership, lender, or lessor for a one-time cost of $400 to $700, but many traditional car insurance companies also offer gap insurance for $20 to $40 per year. It is worth noting that gap insurance purchased from a dealership may be more expensive than that purchased from an insurance company, as the cost is added to the principal, which is then used to calculate interest.

While gap insurance is not required by law, it can be a valuable form of protection for those who find themselves in any of the above situations. It ensures that they are not left paying for a vehicle they can no longer drive and provides peace of mind in the event of a total loss.

It doesn't cover repairs, personal injuries or other accident-related expenses

GAP insurance (which stands for guaranteed asset protection) is an optional add-on to your car insurance policy. It covers the difference between the compensation you receive for a totalled car and the amount you owe on your financing or lease agreement. GAP insurance does not, however, cover repairs, personal injuries, or other expenses related to an accident.

If your car is completely written off in an accident or through theft, your standard car insurance policy will reimburse you based on the current value of the car, taking into account depreciation. GAP insurance covers the "gap" between this reimbursement and the amount you still owe on your loan or lease.

For example, if you owe $20,000 on your car financing agreement, but due to depreciation, your car's actual cash value is only $15,000 when it is written off, your standard insurance will pay out $15,000. GAP insurance can then cover the remaining $5,000 you owe.

GAP insurance does not cover repairs to your vehicle, damage to someone else's vehicle, or any additional charges related to your loan or lease agreement, such as excess mileage charges. It also does not cover personal injuries or other expenses you may incur as a result of an accident.

It is important to note that GAP insurance is not mandatory and may not be necessary for everyone. It is designed to protect you financially if you owe more on your car loan than the car is worth. This can happen if you did not make a significant down payment, chose a long loan term, or leased the vehicle.

It's worth considering if you've leased your vehicle or made a small down payment

GAP insurance, or guaranteed asset protection, is an optional add-on to your auto insurance policy. It covers the difference between the smaller of the actual or scheduled payoff balance owed under your original financing agreement and the value that the auto insurance carrier has placed on your vehicle. This is particularly useful if you've leased your vehicle or made a small down payment, as it can protect you from owing more on your loan or lease than the car is worth.

For example, if you've leased a car with an MSRP of $40,000 and a negotiated final price of $38,000, your monthly payments will be based on the difference between the selling price and the residual value (the amount it will be worth at the end of the lease). If you've made a small down payment, you may owe more than the car is worth if it is stolen or totaled in an accident. In this case, GAP insurance will cover the difference between the car's value and the payoff amount.

It's important to note that GAP insurance won't help you get your down payment back if your leased vehicle is stolen or totaled. It simply covers the difference between the car's value and how much is owed on it. Additionally, GAP insurance won't pay for repairs to your vehicle, damage to someone else's vehicle, or additional charges related to your loan or lease agreement, such as excess mileage charges.

When considering GAP insurance, it's essential to review the terms of the policy carefully. The coverage may vary depending on the state you reside in and the specific insurance provider. It's also important to keep making your loan or lease payments while waiting to receive any insurance claim settlements to avoid negative consequences for your credit.

It can be purchased from an insurance company or dealership, with the former being cheaper

Guaranteed Asset Protection (GAP) insurance can be purchased from an insurance company or a dealership. While buying GAP insurance from a dealership is convenient, it is often cheaper to buy it directly from an insurance company.

When buying a car, many people prefer to take care of all the necessary steps at the dealership, including purchasing auto insurance. Dealerships usually have insurance agents on-site or partnerships with insurance companies in their local area. This allows buyers to drive off the lot with their new car and an insurance policy. However, waiting until you're at the dealership to buy a policy can be more expensive.

Insurance companies reward people they deem responsible with lower rates. One way they measure responsibility is by offering an "advanced shopping discount" or an "early shopper discount" to those who get an insurance quote ahead of time, rather than waiting until the last minute. By getting a quote in advance, you can lock in this discount and save a significant amount on your policy.

To take advantage of this discount, it's recommended to get quotes from insurance agents or companies directly at least a week before buying your car. They can provide insurance prices for different cars you may be considering, even if you haven't decided on a specific model yet. Once you've chosen your car, you can purchase the insurance and set the start date for when you pick up the vehicle. This way, you won't pay anything for the time between buying the insurance and the start date, and you may even qualify for an "early purchase discount" offered by some companies.

Frequently asked questions