Gap Insurance: Do You Need It?

If you're wondering whether you have GAP insurance for your Toyota vehicle, the first step is to understand what GAP insurance is and how it works. GAP insurance covers the difference between what you owe on your car loan and the car's worth in the event of an accident or total loss. This type of insurance is optional and not a state requirement, so it's important to check if you have actively sought it out or added it to your existing insurance policy. To know if you have GAP insurance, you can refer to your lease agreement, contact your lender or leasing company, or review your current car insurance policy. Some dealerships may also include GAP insurance as part of your monthly loan payments, so checking your sale documents can provide clarity. Additionally, certain lease contracts include a gap waiver clause, which covers the difference between the car's market value and your remaining principal. It's worth noting that GAP insurance is typically only available at the time of financing a new vehicle and may not be added at a later date.

How do I check if I have gap insurance?

If you're unsure whether you have gap insurance, there are a few places you can check. Gap insurance covers the difference between what you owe on a loan/lease and the car's actual cash value, and it can be purchased from a dealership, bank, credit union, or car insurance company.

First, check your existing car insurance policy and the terms of your loan or lease. Gap insurance is often offered as an optional add-on by insurers or dealers, so check your policy documents to see if it's listed. If you know you bought gap insurance but aren't sure if you still have it, you can call your agent or insurance company to ask about your coverage.

If you're unsure where you got your gap insurance from, you may need to check with multiple sources. If you financed your vehicle through a dealership, bank, or other lender, check the documents from both the dealer and the lender, as either may have included gap coverage automatically. If gap insurance is included in your lease or loan agreement, it may be listed as "gap waiver" in the terms.

If you still can't find any information, check your financial records, such as online bills, credit card statements, and chequebook, for any clues. If you realise you don't have gap insurance and are interested in purchasing it, you can usually add it to your existing policy.

What is GAP insurance?

GAP insurance stands for Guaranteed Asset Protection insurance. It is an optional add-on coverage that can help certain drivers cover the difference between the financed amount owed on their car and the car's actual cash value. This comes into play in the event of a covered incident where their car is declared a total loss.

For example, if you have a three-year-old car that is totalled in an accident, your collision insurance will pay out the car's actual cash value, which may be only $20,000. However, you may still owe $25,000 in payments on the car loan. In this case, GAP insurance will cover the $5,000 difference (minus your deductible).

GAP insurance is intended for drivers who owe more on their car loan than the car is currently worth. It is typically only available for brand-new vehicles or models less than three years old. It is also a good option for drivers whose car loan or lease requires GAP insurance.

GAP insurance is different from new car replacement coverage. It does not mean that your insurance provider will pay you the full amount you originally paid for your car. Instead, it covers the financed amount you currently owe on your car at the time of a covered accident, minus your deductible.

You can purchase GAP insurance independently or as part of your auto insurance policy. It is generally more expensive to buy GAP insurance from a dealership than from an insurer. Some dealerships may automatically add GAP insurance to your loan, but you can decline this coverage.

When is GAP insurance useful?

Guaranteed Auto Protection (GAP) insurance is useful when your car is declared a total loss. This could be due to theft or accidental damage. In such cases, GAP insurance covers the difference between the depreciated value of the car and the loan amount owed. This is especially useful if you have a long payoff period or if you owe more than the car's current value.

GAP insurance is also useful if you have a lease agreement. In some cases, leasing companies require GAP insurance in case of a total loss. It is beneficial for lessees and drivers who still owe on their auto loans. However, if your loan is paid off, you likely won't need GAP insurance.

Additionally, GAP insurance can be useful if you have rolled negative equity from your previous car loan into your new loan. Some GAP insurance policies cover the total loan balance, including negative equity. However, not all policies do, so it's important to review the terms of your policy carefully.

Furthermore, GAP insurance can be useful if you have a vehicle that depreciates faster than average. Certain types of luxury cars, such as the Maserati Quattroporte and the BMW 7 Series, depreciate by more than 60% over five years. In such cases, GAP insurance can help protect you from financial loss if your vehicle is declared a total loss.

Overall, GAP insurance is useful when you want to bridge the financial gap between the depreciated value of your car and the loan amount you still owe in the event of a total loss. It provides financial protection and peace of mind, especially for drivers with long payoff periods or those who owe more than their car's current value.

Where can I buy GAP insurance?

If you're thinking of buying GAP insurance, you can usually get it from your car dealer or your auto insurance company. It's also sometimes available from banks and credit unions.

When you buy or lease a car, the dealer will likely ask if you want to purchase GAP insurance when you discuss your financing options. However, buying GAP insurance from a dealer can be more expensive if the cost of the coverage is bundled into your loan amount, which means you'd be paying interest on your GAP coverage.

You can typically add GAP coverage to an existing car insurance policy or a new policy, as long as your loan or lease hasn't been paid off. Buying GAP insurance from an insurance company may be less expensive, and you won't pay interest on your coverage. If you already have car insurance, you can check with your current insurer to determine how much it would cost to add GAP coverage to your existing policy.

Note that you need comprehensive and collision coverage in order to add GAP coverage to a car insurance policy.

How much does GAP insurance cost?

The cost of GAP insurance depends on where you buy it. You can purchase GAP insurance from your car insurance company or from the auto dealership where you bought your car.

The average cost of GAP insurance is $89 per year. However, prices vary depending on the make and model of your vehicle and how fast it depreciates. For example, a $40,000 Toyota may cost $50 or less per year to insure, whereas a $100,000 Range Rover may cost $150 or more per year due to the high cost and quick depreciation rate.

GAP insurance offered by auto dealerships is typically more expensive than that offered by insurance companies. Dealerships may mark up the cost of GAP insurance by 300%, and the cost is usually built into your loan payments. This means you will also pay interest on the insurance, and you may end up paying more in the long run.

When deciding whether to purchase GAP insurance, it is important to consider the value of your vehicle and the depreciation rate. GAP insurance is typically only necessary during the first two to three years of financing, as this is when your auto loan is most likely to be "upside down", meaning you owe more than the car is worth.

Some insurance companies offer GAP insurance for as little as $20 per year, while others charge between $35 and $208 per year. It is always recommended to shop around and compare quotes from multiple insurers to find the best deal.

Frequently asked questions