Activating Gap Insurance: A Comprehensive Guide For Farmers Insurance Policyholders

Gap insurance is an option for drivers who finance their vehicles. It covers the difference between the amount you still owe on your car loan and the amount your car is worth if it is stolen or totaled. This type of insurance is especially important if you owe more on your car than it is worth. While Farmers Insurance does not offer gap insurance, you can purchase it from a dealership or a standalone company. When buying gap insurance, it is important to shop around and compare prices, as dealership gap insurance is often the most expensive option.

Farmers Insurance does not offer gap insurance

If you're a current Farmers customer and want to maintain your policy, you could purchase gap insurance from a dealership or a stand-alone company. However, dealership gap insurance is often the most expensive option, since it's usually rolled into your loan and charged interest.

Gap insurance is an option for drivers who finance their vehicle. It provides coverage when you owe more on your car than it’s worth. Your risk decreases as your loan balance goes down.

Farmers Insurance suggests to its customers that some form of GAP be put in place if any of the following circumstances apply:

• You’ve made a down payment on a new car loan of 20% or less.
• You’ve taken negative equity from a previous car loan and rolled it into a new car purchase.
• You have a car loan where the term is 72 months or longer.
• You’ve bought a car that depreciates quickly (like a sports car).

Gap insurance covers the difference between the amount owed on a car and its value

If your car is stolen or involved in an accident and deemed a total loss, your insurance company will reimburse you based on the car's current value, not the price you paid for it or the amount you still owe. Gap insurance covers the difference between the amount your insurance company pays out and the amount you still owe on your car loan or lease.

For example, if your car is worth $20,000 but you still owe $25,000 on your loan, gap insurance will cover the $5,000 gap, minus your deductible.

Gap insurance is optional and not offered by all insurance companies. Farmers Insurance does not offer gap insurance, but you can purchase it from other insurance companies or your auto lender. If you buy gap insurance through your auto lender, it will likely be added to your loan, which means you'll pay interest on it. It's generally more cost-effective to buy gap insurance from an insurance company.

Gap insurance is worth considering when leasing a vehicle

Gap Insurance: Worth Considering When Leasing a Vehicle

Gap insurance is an optional, additional type of insurance that covers the difference between what your vehicle is worth and the amount you owe on your lease or loan if your vehicle is stolen or declared a total loss. In other words, it covers the "gap" between what you owe and what your vehicle is worth.

When you lease a vehicle, you are usually required to return the vehicle to the company at the end of the leasing period. During the leasing period, you make monthly payments to be able to use the car. However, if the vehicle is stolen or declared a total loss, you may be left with the burden of having to continue making payments on a vehicle that you no longer have. This is where gap insurance comes in.

Some leasing companies require gap insurance, while others may provide it as part of the leasing agreement. It is important to check with your leasing company to see if gap insurance is necessary or already included in your agreement.

While gap insurance can be beneficial, it may not be worth it if you have already paid off most of your lease, made a significant down payment, or could afford to pay the gap yourself if your vehicle is stolen or totalled. Additionally, gap insurance is not required by state law and is not offered by all insurance companies.

Overall, gap insurance is worth considering when leasing a vehicle as it can provide financial protection and help you avoid paying for a vehicle that you can no longer use.

Gap insurance is typically purchased from a dealership or standalone company

When buying a new car, the dealer will likely offer you gap insurance when discussing your financing options. Dealership gap insurance tends to be pricier compared to options available in the wider insurance market or through finance companies. This is because the cost of coverage is usually bundled into your loan amount, meaning you pay interest on your gap coverage.

You can also purchase gap insurance through your auto insurer, either by adding it to an existing policy or as part of a new policy. This option is generally more affordable, and you won't pay interest on the coverage. If you already have car insurance, check with your current insurer to see how much it would cost to add gap coverage to your policy. Note that you typically need comprehensive and collision coverage to add gap coverage to a car insurance policy.

Gap insurance is not a legal requirement, but your lender or lessor may require you to purchase it if you financed your vehicle. It is usually only available for new vehicles—typically those no more than a year old. Before purchasing gap insurance, it is important to understand that it is not new car replacement insurance. It will help you pay off an existing car loan, but it will not provide the full funds to replace a totalled vehicle with a new one.

Gap insurance is a requirement for some vehicles

Gap insurance is an optional coverage that pays the difference between what your vehicle is worth and how much you owe on your car loan at the time it is stolen or totaled. This coverage supplements a comprehensive or collision car insurance payout, which can only be as high as your car's value.

Gap insurance is also necessary if you have rolled over negative equity from an old car loan into a new loan. In this case, gap insurance will cover the negative equity, but not all gap insurance policies will do this, so make sure to check.

Additionally, gap insurance is generally required for vehicles that depreciate faster than average, such as luxury sedans or SUVs. These vehicles may lose value at a faster rate, so gap insurance can help protect lenders from car owners who walk away from a loan if the car is totaled or stolen.

It's important to note that gap insurance is not offered by all insurance companies, and it may not be available in every state. It's also worth mentioning that Farmers Insurance, for example, does not offer gap insurance. Therefore, if you decide you want gap insurance, you may need to switch insurance companies.

Frequently asked questions