Gap Insurance: Refinancing Risks

Gap insurance is an optional auto insurance coverage that applies if your car is stolen or deemed a total loss. When your loan amount is more than your vehicle is worth, gap insurance coverage pays the difference. For example, if you owe $25,000 on your loan and your car is only worth $20,000, your gap coverage covers the $5,000 gap, minus your deductible.

Gap insurance covers the difference between the value of your car and the loan amount owed if your car is stolen or involved in an accident

Gap insurance is an optional form of auto insurance that covers the difference between the value of your car and the loan amount owed if your car is stolen or involved in an accident. This type of insurance is intended to protect car owners from financial losses resulting from their car's depreciation.

When you buy a new car, its value starts to decrease immediately. This depreciation creates a "gap" between what you owe on your car loan and the car's actual value. Gap insurance bridges this gap by covering the difference between the depreciated value of the car and the loan amount owed if the car is involved in an accident or stolen.

For example, if you owe $25,000 on your loan and your car is only worth $20,000, gap insurance will cover the $5,000 difference, minus your deductible. This coverage ensures that you don't have to pay out of pocket to make up the shortfall between the insured value of the car and the loan amount owed.

Gap insurance is particularly useful if you made a small down payment on your car (less than 20%), have a long financing term, or purchased a vehicle that depreciates faster than average. It is also generally required if you are leasing a vehicle.

You can purchase gap insurance from car dealers or traditional insurance companies. However, insurance companies typically charge less than dealers, so it is recommended to compare prices before purchasing. Gap insurance is added to your comprehensive auto insurance policy, and it usually costs around $20 per year.

Gap insurance is optional and can be purchased from car insurance companies or dealers

Gap insurance is typically purchased when a vehicle is financed or leased without a down payment, as the amount borrowed may be more than the total value of the car. In the event of an accident or theft, standard car insurance will only pay up to the current value of the car, which may be less than the outstanding loan or lease amount. Gap insurance covers the difference between the depreciated value of the car and the loan amount owed.

You can buy gap insurance from car insurance companies, banks, credit unions, and car dealerships. However, it is generally cheaper to purchase it from a car insurance company rather than a dealership. Adding gap coverage to an existing car insurance policy can cost as little as $20 per year, while dealerships typically charge a flat rate of $500 to $700 for a gap policy.

It's important to note that gap insurance is not necessary for everyone. If you have made a substantial down payment on your car or are paying off your loan in a short period, you may not need gap insurance. Additionally, gap insurance is only applicable when there is a "gap" between the value of your car and the amount you owe on it. Once your loan balance is lower than the value of your vehicle, gap insurance may no longer be necessary.

You must have collision and comprehensive insurance to buy gap coverage

Gap insurance is an optional auto insurance coverage that applies if your car is stolen or deemed a total loss. It covers the difference between the compensation you receive after a total loss of your vehicle and the amount you still owe on a car loan.

To qualify for gap insurance, you must have comprehensive and collision coverage on your policy. Comprehensive insurance covers theft and non-crash damage like fire and floods. Collision insurance covers damage to your car if you hit another vehicle or object, regardless of fault.

Here's how a typical gap insurance claim works: If your vehicle is stolen or totaled in an accident covered by your auto insurance, you'll make a claim on either the collision or comprehensive insurance portion of your policy. Your insurer will pay your lender the actual cash value (ACV) of your car. If you owe more on your loan than the ACV, gap insurance can cover the difference.

Gap insurance is particularly useful if you:

• Made less than a 20% down payment
• Financed for 60 months or longer
• Leased the vehicle (gap insurance is generally required for a lease)
• Purchased a vehicle that depreciates faster than the average
• Rolled over negative equity from an old car loan into the new loan

Gap insurance doesn't cover engine failure, transmission failure, death, or your insurance deductible

Gap insurance is an optional type of auto insurance coverage that covers the difference between the actual cash value of a vehicle and the amount still owed on a loan or lease in the event of theft or total loss. It is important to note that gap insurance does not cover engine failure, transmission failure, death, or your insurance deductible.

Gap insurance is designed to protect drivers who finance or lease their vehicles and may owe more than the vehicle's value if it is stolen or totaled. This type of insurance is typically purchased within a short timeframe after buying or leasing a new car and is not required by any state. While it is optional, some lease contracts and lenders may require or include it.

Engine failure and transmission failure are typically not covered by car insurance unless they result directly from an accident or another incident covered by your insurance. These types of mechanical issues are generally considered separate from incidents like theft or total loss, which gap insurance covers.

Additionally, gap insurance does not cover death or funeral costs. The liability portion of a car insurance policy covers accidental death to others, and personal injury protection or medical payments coverage can cover funeral fees for the policyholder and their passengers.

Finally, gap insurance usually does not cover your insurance deductible. However, some gap insurance policies offered by dealerships may include the primary insurance deductible in their coverage, but these policies tend to be more expensive.

You can cancel gap insurance by contacting your car insurance company

Gap insurance is an extension of your auto insurance that covers the difference between the actual cash value of your car and what you owe on a loan. It is usually sold as part of a comprehensive policy that includes other types of coverage, such as liability, collision, and comprehensive. While it can be a valuable form of coverage, there may come a time when you want to cancel your gap insurance.

If you have recently signed your car loan or lease agreement, you may qualify for a refund after cancelling your gap insurance. This will depend on the terms of your policy and how long you have had the coverage. Refunds are typically prorated, meaning you will receive a refund for the portion of the coverage that you did not use.

Keep in mind that cancelling gap insurance may leave a gap in your coverage if you still owe money on your vehicle. It is recommended to review your policy carefully and consider your financial situation before deciding to cancel.

Frequently asked questions