Gap Insurance: Does It Cover Carjacking?

Gap insurance, or guaranteed asset protection, is an optional form of insurance that covers the difference between the amount owed on a car loan or lease and the amount paid out in a total loss settlement from an auto insurer. In other words, gap insurance covers the gap between the amount you owe on your vehicle and its depreciated value if it is stolen or totaled. This type of insurance is particularly useful for those who lease a vehicle or have a loan and owe more than the vehicle is worth. While gap insurance does not cover every scenario, it can provide financial protection in the event of a total loss.

When is gap insurance worth it?

Gap insurance is worth it in a few situations. If you lease a vehicle or have a loan, you may want to consider gap insurance if you cannot afford to pay the difference between the amount you still owe and the value of your car. In this case, gap insurance can help to minimise your financial losses.

You should consider purchasing gap insurance if:

• You made a small down payment
• You have a long finance period
• You purchased a vehicle that depreciates quickly

Additionally, if your car is leased or financed, gap insurance may be required. Some lenders and lease providers mandate it, and it is generally necessary for a lease.

However, if you do not have a car loan or lease, gap insurance is unnecessary. If you have paid off your car loan or if the loan amount is less than the value of your car, you do not need gap insurance.

The cost of gap insurance varies depending on factors such as the value of your car, your state of residence, and your previous insurance claims. It typically costs a few dollars a month or around $20 a year when purchased from an insurer. Dealerships and lenders may charge a flat fee of $500 to $700, which includes interest if added to loan payments.

In summary, gap insurance is worth considering if you have a car loan or lease and cannot afford to pay off the remaining amount if your car is stolen or totaled. However, if you own your car outright or owe less than its value, gap insurance may not be necessary.

What does gap insurance cover?

Guaranteed Asset Protection (GAP) insurance is an optional product that covers the difference between the amount you owe on your auto loan and the amount the insurance company pays if your car is stolen or totaled. It is intended for people who finance or lease their vehicles.

Gap insurance covers what is owed on a car after a total loss, whether that is the result of an accident or vehicle theft. It supplements a comprehensive or collision car insurance payout, which can only be as high as your car's value. You are responsible for paying off your car loan if your car is totaled or stolen, even if your insurance won't cover the full amount you still owe. This is where gap insurance can be useful.

However, gap insurance does not cover costs related to vehicle repairs, personal injuries, or other accident-related expenses. It also does not cover your comprehensive or collision deductible.

In summary, gap insurance covers the difference between the amount you owe on your auto loan and the amount your insurance company pays out if your car is stolen or totaled. It is designed to protect people who finance or lease their vehicles and can provide financial peace of mind in the event of a total loss.

When should you get gap insurance?

Gap insurance is an optional coverage that you can add to your auto insurance policy when adding a new vehicle to your policy. It is not a legal requirement in most states, but it can be beneficial in certain situations. Here are some scenarios when you should consider getting gap insurance:

• When Buying a New Car: If you are purchasing a brand new car, gap insurance can provide valuable protection. Cars depreciate quickly, and if your new car is totaled or stolen before you have finished paying off the loan, gap insurance will cover the difference between the remaining loan amount and the car's depreciated value.
• Small Down Payment: If you make a small down payment on your car, you will be financing a larger amount. In this case, gap insurance can be a good idea because the car's value can drop faster than you repay the loan, leaving you owing more than the car is worth.
• Long Loan Terms: Longer loan terms mean you pay down the principal more slowly, increasing the period during which you might owe more than the car's value. Gap insurance can help cover this difference.
• Leasing a Vehicle: If you are leasing a vehicle, gap insurance can be a good idea. In the event of a total loss or theft, gap insurance will cover any remaining payments on your lease that exceed the car's actual cash value.
• Rapid Depreciation: Some cars depreciate faster than others. If you own a vehicle that is expected to depreciate quickly, gap insurance can help protect you from owing more than the car's value.
• Rolling Over Old Loans: If you are buying a new car and rolling over any outstanding balance from an old car loan, you will instantly create negative equity in the new vehicle. Gap insurance can help cover this difference.

Remember, gap insurance is not required in most states and may not be necessary for everyone. However, if you find yourself in any of the above situations, it is worth considering gap insurance to protect yourself from potential financial losses.

How much does gap insurance cost?

The cost of gap insurance depends on the underwriter. Dealerships and lenders charge higher prices than car insurance companies. Lenders and dealerships sell gap insurance for a flat rate, typically between $500 and $700, which are the highest rates for this type of policy. Plus, you will pay interest on the sum since it will be rolled into your loan.

Insurance companies, on the other hand, charge an average of $20 to $40 per year for gap insurance when buyers bundle it into an existing insurance policy. This will only increase your comprehensive and collision insurance cost by about five to six percent on average, making it a lot more affordable. If you want to buy a standalone gap insurance policy, you can expect to pay between $200 and $300.

Factors that can affect the cost of gap insurance include the vehicle's actual cash value (ACV) and auto insurance claims history.

Where can you buy gap insurance?

Gap insurance is typically available from two sources: your auto dealer or your auto insurance company.

If you're buying or leasing a new 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, as you'll 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, 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 to add gap coverage to a car insurance policy.

Some dealers are required by state law to offer gap insurance. Dealers typically charge a flat rate of $500 to $700 for a gap policy, which is substantially more than the major insurance companies. On the other hand, an insurer typically prices it at 5% to 6% of the collision and comprehensive premiums on your auto insurance policy. For example, if you pay $1,000 a year combined for collision and comprehensive coverage, gap insurance may add $50 to $60 extra.

Frequently asked questions