Gap Insurance: Stalling Tactics Exposed

Gap insurance is a type of optional car insurance that covers the difference between the value of a car and the amount still owed on the loan or lease in the event of theft or a total loss. It is often required by lenders and lessors, and can be purchased from car insurance companies, loan providers, or dealerships. The cost of gap insurance varies depending on where it is purchased, with dealerships and banks charging a lump sum of up to $700, and insurance companies charging as little as $3 per month. It is worth noting that gap insurance is not required by state law and may not be necessary if the loan balance is less than the car's value.

When to get gap insurance

Gap insurance is an optional add-on coverage that can help certain drivers cover the difference between the amount they owe on their car loan and the car's actual cash value (ACV) in the event of a total loss. This type of insurance is particularly useful if you owe more on your car loan than the car is worth.

• You owe more on your car loan than the car is currently worth: If you have a car loan and the amount you owe is higher than the car's ACV, gap insurance can provide valuable protection. Calculate your loan balance and compare it to your car's current ACV to determine if there is a gap.
• Your car loan requires gap insurance: Some lenders or lease providers may require you to have gap insurance as a condition of your loan or lease agreement. In such cases, you may not have a choice but to purchase gap insurance to fulfil the requirements of your loan or lease contract.
• You have a long loan payoff period: If you have chosen a long payoff period for your car loan, such as 60 months or more, you may want to consider gap insurance. This is because the longer the loan period, the more likely it is that you will owe more than the car's value at some point during the loan term.
• You made a small down payment: If you made a small down payment or no down payment at all when purchasing your car, you may want to consider gap insurance. A small down payment means you are financing a larger amount, and the car's value may depreciate faster than you repay the loan, leading to a situation where you owe more than the car is worth.
• You have negative equity in your car: If you have rolled over negative equity from an old car loan into a new loan, gap insurance can help protect you. This situation can occur when you trade in your old car and still owe money on the loan, and the negative equity is added to the new loan amount.
• You have a car that depreciates quickly: Some vehicles, such as luxury cars or certain SUVs, may depreciate faster than the average. In such cases, gap insurance can help protect you if the car is totalled or stolen before you have built up enough equity.
• You are leasing a car: Gap insurance is generally required when leasing a vehicle. It is important to review the terms of your lease agreement to determine if gap insurance is required or already included in the lease price.

Remember, gap insurance is not necessary if you own your car outright or if you owe less on your car loan than its current ACV. Additionally, gap insurance is typically only available for newer vehicles, usually brand new or less than a year old.

How to get a refund

How to Get a GAP Insurance Refund

If you have paid upfront for GAP insurance and believe you no longer require it, you may be entitled to a refund. GAP insurance refunds are typically available in three situations:

• Paying off your loan early: If you pay off your car loan before the end of its term, you may be eligible for a partial refund for the GAP coverage you haven't used. This is because you have already used a portion of your GAP insurance while your loan was active. Therefore, you will only receive a refund for the unused coverage, which is usually calculated on a pro-rata basis.
• Switching insurance providers: If you are unsatisfied with your current insurance provider, you can switch to a different company. After cancelling your original policy, you can request a refund for the cancelled coverage you didn't use. If you cancel within 30 days of the policy start date, you may receive a full refund (including GAP insurance costs). Beyond this period, your refund will likely be prorated.
• Selling or trading in your car: If you sell or trade in your car, you can cancel your GAP insurance and receive a refund for the unused coverage. Ensure that you wait to cancel your insurance until the car is legally sold or traded.

To request a GAP insurance refund, follow these steps:

• Contact your insurance provider: Inform them that you want to cancel your GAP insurance and obtain a refund for the remaining coverage. Remember to do this only after your car loan is paid off or the vehicle is legally sold/traded.
• Provide necessary documentation: Gather and submit documents that prove your car was traded, sold, or that you paid off your loan early. You may also need to provide information such as your car's current mileage.
• Complete the required forms: Fill out and submit any forms or paperwork that your insurance company requires to finalise the cancellation and refund process.
• Understand the timing of refunds: Typically, GAP insurance refunds are processed within 30 days, but this may vary depending on the company and state regulations.

It is important to note that you will only receive a refund for the unused portion of your GAP insurance coverage. Additionally, if you have been paying for your insurance monthly, you may not be eligible for a refund since you have only paid for the coverage received so far.

When to cancel gap insurance

Gap insurance is an optional form of financial protection that covers the difference between the current market value of your car and the amount you still owe on a loan or lease. It is designed to protect your finances in the event of a total loss, such as your car being stolen or written off in an accident.

While gap insurance can be a valuable form of protection for new vehicles, it may become unnecessary as your car gets older. Here are some scenarios in which you may want to consider cancelling your gap insurance:

Your Loan Amount Drops Below the Car's Value:

If you have made payments on your loan for a few years, your loan amount may drop below the car's value. In this case, gap insurance may no longer be necessary, as the payout from your standard car insurance policy would be sufficient to cover the remaining loan amount in the event of a total loss. This typically happens after about two years of payments.

You Pay Off Your Loan Early:

If you pay off your car loan early, gap insurance may no longer be needed. Gap insurance is designed to protect you from owing more than the current value of your car. Once your loan is paid off, you own the vehicle outright, and there is no longer a "gap" between the car's value and the amount you owe.

You Sell or Trade Your Vehicle:

If you sell or trade in your vehicle, you will no longer need gap insurance on that particular car. However, if you are planning to purchase a new vehicle, you may want to consider getting gap insurance for it, especially if you are taking out a loan or lease.

You No Longer Feel It Is Necessary:

Over time, your vehicle's value will depreciate, and you may reach a point where you feel the cost of gap insurance is no longer worth the benefit it provides. This could be due to a variety of factors, such as a decrease in the resale value of your car or a change in your financial situation.

You Want to Switch Insurance Providers:

If you find a better deal or are unhappy with your current gap insurance provider, you may want to switch to a different company. In this case, it is important to have a new policy in place before cancelling your existing one to ensure there is no lapse in coverage.

You Need to Lower Your Insurance Costs:

Gap insurance is an additional cost on top of your regular car insurance premiums. If you are looking to cut down on expenses, cancelling your gap insurance could be an option, especially if your car is no longer new and has depreciated in value.

Remember, before cancelling your gap insurance, it is important to review the terms and conditions of your policy, as there may be cancellation fees or other restrictions involved. Additionally, if you have a loan or lease agreement, check with your lender or leasing company to ensure you are not required to maintain gap insurance for the duration of the agreement.

What to do if your insurance company stalls

If your insurance company is stalling, there are several steps you can take to get the process moving again. Firstly, ask the adjuster for a complete list of documents and information needed to fully evaluate your claims. Keep physical copies of all evidence that can support your claim and follow up with the insurance company regularly. It is also a good idea to put all your communications with the insurance company in writing and ask to speak to a supervisor. If these steps do not work, you may need to file a complaint with the Office of the Commissioner of Insurance and Safety Fire, or retain a lawyer to correspond with the insurance company on your behalf.

How to get a good deal

Gap insurance is an optional type of car insurance that covers the difference between the amount owed on a car loan or lease and the car's actual value in the event of theft or a total loss. It is worth considering if you have a low down payment, a long-term loan, or a car that depreciates quickly.

• Shop around for the best price: Gap insurance can be purchased from car insurance companies, loan providers, or dealerships. The cost of gap insurance varies depending on the provider and how it is paid for. It is generally cheaper to add it to your car insurance policy, which tends to cost between $20 and $40 per year. In contrast, dealerships and banks charge a lump sum of up to $700 for gap insurance, and this sum is usually added to your auto loan, resulting in additional interest charges.
• Compare the cost with traditional insurers: If you are considering buying gap insurance from a dealership, compare the cost with what traditional insurers charge. Dealerships typically charge a higher price for gap insurance, and it may be more beneficial to purchase it through your car insurance company.
• Consider the duration of your policy: Gap insurance is typically only needed until your loan balance is lower than the car's value. Keep track of how much your car is worth using resources like Kelley Blue Book or NADA Guides. Once you owe less than the car is worth, you can safely cancel your gap insurance coverage.
• Review your policy regularly: It is a good idea to review your insurance policy at least once a year. This way, you can ensure that you still need gap coverage and are getting the best deal for your needs.
• Switch providers if necessary: If you find a better deal on gap insurance from another provider, you can switch providers. Just make sure that you have continuous coverage during the transition period.
• Bundle your insurance: Consider bundling your gap insurance with your comprehensive and collision coverage, as these are typically required when buying or leasing a new vehicle.

By following these tips, you can increase your chances of getting a good deal on gap insurance and avoid overpaying for this optional coverage.

Frequently asked questions