Paul Sanchez
Gap insurance is an optional auto insurance coverage that helps pay your car loan if your car is lost or stolen and you owe more than the vehicle is worth. It covers the difference between what you owe on your car and what it’s worth. You might need it if your car is worth less than what you owe on your car loan. Gap insurance is charged as a fixed price with a lender or dealership for the total length of your loan. You most likely won’t be able to negotiate a lower price for it. However, you can get gap insurance from your insurance company, which is usually cheaper than getting it from a dealership.
| Characteristics | Values |
|---|---|
| When to get gap insurance | If you made a small down payment, have a long finance period, or purchased a vehicle that depreciates quickly. |
| When not to get gap insurance | If you made a down payment of at least 20% on the car when you bought it, or if you’re paying off the car loan in less than five years. |
| How to get gap insurance | The easiest and cheapest way is to ask your auto insurance company to add it to your existing policy. You can also get it from a car dealership or auto lender, but this will be more expensive. |
| Cost of gap insurance | If bought from a dealership, gap insurance can cost hundreds of dollars a year. If added to an existing car insurance policy, it typically increases the premium by $40 to $60 per year. |
| How to save money on gap insurance | Shop around and compare rates between companies to ensure you’re getting the best rate. |
What You'll Learn
Compare prices and coverage with other insurance companies
Comparing prices and coverage with other insurance companies is a crucial step in getting the best deal on gap insurance. Here are some tips to help you through the process:
- Shop around: Don't just settle for the first quote you receive. Get quotes from multiple insurance companies and specialist brokers to find the best price and coverage for your needs. You can use comparison websites or contact companies directly to get quotes.
- Compare types of GAP insurance: There are several types of GAP insurance policies, including Finance GAP insurance, Return-to-invoice GAP insurance, Vehicle replacement GAP insurance, and Negative equity GAP insurance. Compare the features and benefits of each type to determine which one suits your specific needs.
- Consider the excess: As with most insurance policies, you can often get a cheaper deal by agreeing to a higher excess amount. Just make sure you are comfortable with the excess amount in case you need to make a claim.
- Don't buy directly from the car dealer: Car dealers are not allowed to sell GAP insurance at the same time as the vehicle. They may follow up with offers shortly after the sale, but you are likely to find a better deal from an online provider or your own insurance company.
- Negotiate: If you find a better quote online, use it as leverage to negotiate with your car dealer. They may be willing to match the price or offer a discount.
- Read the policy terms and conditions: Before purchasing GAP insurance, make sure you carefully read and understand the policy terms and conditions, including any exclusions or limitations. This will help you make an informed decision and avoid any surprises later on.
- Check your main car insurance policy: GAP insurance is typically only available if your main car insurance policy is fully comprehensive. Ensure you have the necessary coverage in place before adding GAP insurance.
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Ask your current insurance carrier about gap insurance
When buying a new car, you can get gap insurance from the dealer or your auto insurance company. If you already have car insurance, it is worth checking with your current insurer to determine how much it would cost to add gap coverage to your existing policy.
Gap insurance is a supplemental auto policy that covers the difference between the insured current value of a vehicle and the balance of a loan or lease. If a vehicle is totaled or stolen before the loan is paid, gap insurance covers the difference between the auto insurance payout and the loan amount owed on the vehicle.
If you are financing a vehicle purchase, your lender may require you to have gap insurance for certain types of cars, trucks, or SUVs, especially if they are likely to depreciate and lose value at faster rates, such as luxury sedans or SUVs.
Some dealers offer gap insurance when you purchase or lease a vehicle, but it can be more expensive if the cost of the coverage is bundled into your loan amount, which means you would pay interest on your gap coverage.
If you already have car insurance, it is worth checking with your current insurer to determine how much it would cost to add gap coverage to your existing policy. Buying gap insurance from an insurance company may be less expensive, and you won't pay interest on your 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. Note that you need comprehensive and collision coverage in order to add gap coverage to a car insurance policy.
In summary, if you are considering gap insurance, the best course of action is to ask your current insurance carrier about their gap insurance offerings and compare the cost to what dealers and traditional insurers may charge.
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Shop around for the best rate
When shopping for gap insurance, it's important to shop around for the best rate. This type of insurance can be purchased from several sources, including insurance companies, car dealerships, and auto loan lenders. However, it's worth noting that buying gap insurance from your dealership or lender will likely be more expensive than adding it to an existing insurance policy.
According to Mark Friedlander, director of corporate communications for the Insurance Information Institute (III), "You will reap significant savings by adding gap insurance to your current auto insurance policy versus purchasing separate coverage from a car dealer or financing company."
When considering different providers, it's essential to compare not just the price but also the coverage limits, policy duration, and cancellation policies. Additionally, find out if the gap policy will cover your insurance deductible in case your vehicle is written off or stolen.
- Get a quote from your current insurer: Ask your current insurance provider if they offer gap coverage or a similar type of coverage. Find out the maximum payout amount and the cost to add it to your existing policy.
- Compare alternatives, but consider coverage limits: Not all insurance companies offer gap coverage, but some provide similar types of coverage, such as loan/lease coverage. While this works the same way as gap insurance, it usually pays up to a maximum of 25% of the vehicle's actual cash value.
- Evaluate your current and future needs: Check your policy details and read customer reviews to determine if the company allows easy cancellation of gap coverage. Gap insurance becomes unnecessary once your lease or loan balance is less than the car's value, so you may want to cancel it after a few years.
- Avoid dealership or bank gap insurance: Dealerships and banks usually include the cost of gap insurance in your total loan or lease amount, which means you'll pay interest on your premium. However, some banks or dealerships may include free gap insurance automatically, so it's worth checking.
- Ensure you have your deductible amount saved: Most gap insurance policies won't cover your collision or comprehensive deductible if your car is stolen or destroyed. Even with gap insurance, you'll need to pay your deductible if your vehicle is totaled.
By following these tips and comparing rates from different providers, you can find the best rate on gap insurance that suits your needs.
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Request car insurance quotes online
Requesting car insurance quotes online is a straightforward process. Many insurance companies, such as State Farm and Allstate, offer free auto insurance quotes on their websites. You can also use an online comparison tool, such as the one provided by NerdWallet, to compare rates from multiple insurers at the same time. This can be a convenient way to shop around and find the best deal.
To get an accurate quote, you will need to provide some personal information, including:
- Your name, address, occupation, and birth date
- Your current auto insurance company, if you have one
- Driver's license information for all drivers on the policy
- Annual and current mileage on your car, as well as how often you drive and why (e.g. for pleasure or commuting)
- Vehicle information, including whether you own or lease, the Vehicle Identification Number (VIN), and any safety features
- Your driving history for the past five years, including any tickets, accidents, or violations
- How much coverage you need, including any additional coverages you want
It's important to note that the cost of car insurance can vary widely depending on several factors, such as your age, gender, marital status, driving record, vehicle type, and location. Therefore, it's a good idea to get quotes from multiple companies and compare the coverage and prices before choosing a policy.
In addition to requesting quotes online, you can also work with insurance agents or brokers, either captive (who work for a specific company) or independent (who work with multiple insurers). They can help you navigate your options and provide personalized recommendations. However, keep in mind that they may be motivated by commissions and might upsell you on coverage you don't need.
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Get gap insurance from an insurance company, not a car dealer
When buying a new car, you may be offered gap insurance by the dealer. However, it is usually cheaper to add coverage to an existing policy with a traditional insurer.
Gap insurance, or guaranteed auto protection, covers the difference between the depreciated value of the car and the loan amount owed if the car is involved in an accident. It is worth considering if you have made a small down payment (less than 20%) and chosen a long payoff period, as you may owe more than the car's current value.
If you decide to get gap insurance, it is recommended that you get it from an insurance company rather than a car dealer. This is because the cost of buying gap insurance from a car dealership might seem convenient, but it can often end up costing you more in the long run. Car dealerships typically charge up to $600 for gap insurance that can be added to your loan, whereas the cost of gap insurance from an insurance company is much cheaper, with an average of $61 a year.
Additionally, if you buy gap insurance from a car dealership and the cost is rolled into your car loan, you may not be able to cancel it. The cost of gap insurance could be rolled into your car loan, but that means you will also be paying interest on it. You will also lose the flexibility to cancel the gap insurance since it is tied to your loan, so you might end up paying for something that is no longer useful.
Therefore, it is generally recommended to get gap insurance from an insurance company rather than a car dealer to save money and have more flexibility.
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Frequently asked questions
Gap insurance covers the difference between what you owe on your car and what it’s worth. It is useful if your car is worth less than what you owe on your car loan.
Gap insurance covers the difference between the depreciated value of the car and the loan amount owed if the car is involved in an accident.
The cost of gap insurance can vary but is usually inexpensive. If you buy gap insurance from a dealership, it can cost hundreds of dollars a year. If you add it to a car insurance policy that includes collision and comprehensive insurance, it typically increases your premium by around $40 to $60 per year.
You can get gap insurance from most major car insurance companies, your dealership, or auto lender.
Gap insurance is charged as a fixed price with a lender or dealership for the total length of your loan, so you most likely won't be able to negotiate a lower price. However, you can shop around for the best rate from different insurance carriers.
