Gap Insurance: Michigan's Coverage Explained

Guaranteed Asset Protection (GAP) Insurance is an optional form of auto insurance that covers the difference between the value of a car at the time it is stolen or written off, and the balance owed on a loan or lease. In other words, it covers the ''gap'' between the car's value and the loan amount. GAP insurance is worth considering if you owe more on your car loan than the car is worth, for example, if you've made a small down payment or if the car depreciates quickly. While GAP insurance is not mandated by Michigan state law, certain lenders in the state may require customers to carry it if they take out a car loan or lease.

When is gap insurance worth it?

Guaranteed Asset Protection (GAP) insurance is a type of coverage that is worth considering under certain circumstances. GAP insurance is an optional, additional coverage that helps pay your car loan if your car is lost or stolen and you owe more than the vehicle is worth. It is particularly relevant if you have a long finance period or a small down payment, or if you have a car that depreciates quickly.

• Long Finance Period: If you have taken out a loan with a term longer than 48 months, your car's value is likely to depreciate over time, and you may end up owing more than the car's value. GAP insurance can cover this difference.
• Small Down Payment: If you made a small down payment or no down payment at all when purchasing your car, you are more likely to owe more than the car's value at some point during the loan term. GAP insurance can protect you from having to pay the difference out of pocket.
• High Mileage: If you drive a lot or have a long commute, your car's value will depreciate more quickly due to the higher-than-average mileage. GAP insurance can help bridge the gap between the car's depreciated value and the outstanding loan amount.
• Leased Vehicle: If you are leasing your car, GAP insurance can provide valuable protection. Leased vehicles often come with specific requirements and restrictions, and GAP insurance can help ensure you are covered in the event of a total loss.
• Quick Depreciation: If you have purchased a vehicle that depreciates faster than average, GAP insurance can be beneficial. Some cars, such as luxury sedans or SUVs, may depreciate at faster rates, and GAP insurance can help cover the difference between the depreciated value and the loan amount.
• Inability to Pay Difference: If you know you are unable to pay the difference between your vehicle's depreciated value and the outstanding loan balance out of pocket, GAP insurance is worth considering. It can provide financial protection and peace of mind in the event of a total loss.

It is important to note that GAP insurance is not necessary if you have made a substantial down payment (20% or more) on your car, or if you expect to pay off your car loan in less than five years. Additionally, if your vehicle's value is higher than the loan amount, GAP insurance may not be necessary.

When deciding whether GAP insurance is worth it, it is essential to consider factors such as cost, coverage options, and available providers. It is a relatively low-cost coverage option that can provide added financial security and prevent you from paying money out of pocket in the event of a total loss or theft.

Do I need gap insurance if I have full coverage?

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 is called "Guaranteed Asset Protection" or "Guaranteed Auto Protection" insurance. It covers the difference between the depreciated value of the car and the loan amount owed if the car is involved in an accident.

Even if you have full coverage, you may want to consider getting gap insurance if you still owe money on a car loan or lease. This is because full coverage does not cover the difference between what you owe on a loan/lease and the car's actual cash value, which is what gap insurance does.

Gap insurance is worth the money if you owe more on your car loan or lease than the car is worth. For example, if you made a small down payment on your car, if your loan term is 4-5 years, or if your car will depreciate quickly, you should consider getting gap insurance.

When you might not need 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, you may be able to skip gap insurance.

How much does gap insurance cost?

The cost of gap insurance varies depending on where you buy it. Dealerships and banks charge a lump sum of up to $700 for gap insurance, making them the most expensive choice. Since the sum is usually added to your auto loan, you will have to pay interest on it, too.

The best deals on gap insurance are generally available from car insurance companies, which charge as little as $3 per month for coverage. Instead of charging a lump sum, insurers include the cost in your regular premium payments. When added to a car insurance policy that already includes collision and comprehensive insurance, gap insurance typically increases your premium by around $40 to $60 per year. If you buy gap insurance from a car dealership instead, a gap insurance policy will cost a total of $400 to $700 in most cases.

Some lenders charge a flat fee of $500 to $5,000 for gap insurance if you finance your car through a credit union. If you decide to purchase standalone gap coverage, it typically costs between $200 to $5,000.

The pricing on gap insurance can vary dramatically based on the value of your car, your driving record, accident history, the address of where the car is kept, and the insurance company providing the coverage.

When should I get gap insurance?

You should consider getting gap insurance if you are in one of the following situations:

• You made a small down payment on a car or no down payment at all.
• You agreed to a loan term for longer than 48 months.
• You drive a lot, as this quickly reduces the car's value.
• You leased your car.
• The car you purchased depreciates in value faster than average.
• You owe more on your car loan than the car is worth.
• Your car loan requires gap insurance.
• Your lease requires gap insurance.

If none of these situations apply to you, then you may not need gap insurance. It's important to carefully consider your circumstances and weigh the potential costs and benefits before deciding whether to purchase gap insurance.

How is gap insurance purchased?

There are several ways to purchase GAP insurance in Michigan. One way is to include it in your regular insurance payment from your auto insurance company. You can also pay a one-time fee through a dealership or lender, which may be rolled into your loan payments. Alternatively, you can pay a one-time fee through a company that only sells GAP insurance.

Many insurance providers offer GAP coverage, but it must typically be purchased within six months of buying your car and may be subject to certain restrictions. It is worth noting that GAP insurance is often required when leasing a vehicle and is included in the lease agreement.

When deciding where to purchase GAP insurance, it is important to consider the cost. Adding GAP insurance to your existing auto insurance policy is usually the cheapest option. However, dealership policies may offer higher payout ratios and cover the insurance deductible.

Frequently asked questions