Gap Insurance: Ohio's Essential Coverage

GAP insurance, or Guaranteed Auto Protection, is an optional add-on car insurance coverage that can help 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 an accident. This type of insurance is useful when the car is totaled or stolen, and the driver owes more on the car loan than their insurance company is willing to pay. GAP insurance can be purchased from an independent insurance company or a dealership, but it is important to note that dealerships may charge higher prices for this coverage. While GAP insurance is not required by Ohio law, it can provide valuable protection for drivers who are leasing a vehicle or have a long payoff period on their loan.

When is GAP insurance worth it?

GAP insurance is worth it in several scenarios. Firstly, if you have a long loan term with a payoff period of 60 months or longer, GAP insurance is recommended. Secondly, if you are leasing a vehicle, especially if the lender requires GAP insurance, it is worth considering. Thirdly, GAP insurance is beneficial if you put down a small down payment, typically less than 20% of the purchase price, on a large car loan. Finally, GAP insurance is a wise choice if you are buying a car that depreciates quickly, such as luxury or sports cars, or a car with high mileage.

In general, GAP insurance is worth it when you owe more on your car loan or lease than the car is worth. For example, if you made a small down payment, have a long loan term, or your car will depreciate quickly, GAP insurance can provide valuable protection. However, if you have paid off your loan or lease or if your balance is lower than the car's value, GAP insurance may not be necessary.

Additionally, GAP insurance is typically only needed for one to three years, or until your vehicle's value exceeds what you still owe. It is also worth noting that the cost of GAP insurance is relatively inexpensive, usually ranging from $2 to $60 per month, depending on the provider and the vehicle.

When do lenders require GAP insurance?

Lenders may require GAP insurance when you finance a car with a low down payment, have a long-term auto loan, or lease a vehicle. This is because GAP insurance protects both you and the lender in the event that your car is totalled or stolen and you owe more on the car loan than the car is worth.

GAP insurance is especially important if you have a car that depreciates in value quickly, like a sports car or an electric vehicle, or if you have a long-term loan (for example, a term that is 60 months or longer). It is also worth considering if you made a low down payment (less than 20%, for example) on a large loan, or if you carried over negative equity from a past car loan into your current loan.

While GAP insurance is not required by state law, it may be required by lenders and lessors. It is also worth noting that some lenders may include a gap waiver in your loan or lease, which eliminates the need for GAP insurance.

What does GAP insurance cover?

GAP insurance, or Guaranteed Asset Protection, is an optional insurance product that 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. This type of insurance is designed for people who finance or lease their vehicles, and it is not typically required by law. However, lenders or lessors may require drivers to carry GAP insurance as a condition of the loan or lease.

GAP insurance covers the "gap" between the vehicle's actual cash value at the time of the incident and the outstanding balance on the loan or lease. It is important to note that GAP insurance does not cover costs related to vehicle repairs, personal injuries, or other accident-related expenses. It also does not cover deductible costs, engine failure, or death.

For example, let's say you finance a $35,000 car and, shortly after purchasing it, the car is in an accident and is declared a total loss. Your collision or comprehensive insurance will cover the loss, but there may be a gap between the insurance payout and your loan balance. If the insurance company determines that the actual cash value of your car is $30,000, but your loan balance is $34,000, you would owe $4,000 more on your loan than the car is worth. In this case, GAP insurance would cover that $4,000 difference, protecting you from having to pay that amount out of pocket.

GAP insurance is typically offered as an add-on product by car dealerships, lenders, or insurance companies. It is important to compare prices and coverage before purchasing GAP insurance, as the cost can vary significantly. Additionally, GAP insurance may not be necessary for all drivers. If you own your vehicle outright or have made a large down payment, the gap between the value of your car and your loan balance may be small or non-existent, making GAP insurance unnecessary.

How much does GAP insurance cost?

The cost of gap insurance in Ohio depends on a few factors, including the provider and the vehicle being covered. Generally, gap insurance costs between $2 and $30 per month, but it can be as low as $3 per month or as high as $700 for a one-time flat fee.

Gap insurance is typically purchased from either a dealership or a car insurance provider. Dealerships tend to charge a higher premium for gap insurance, often marking up the cost by 300%. On the other hand, insurance providers offer gap insurance as an add-on to an existing policy, which can result in significant savings. For example, the average cost of gap insurance from an insurance company ranges from $35 to $208 per year.

It's worth noting that gap insurance is not necessary for the entire duration of a car loan. It is typically only needed for one to three years, or until the vehicle's value exceeds the remaining loan amount. Additionally, gap insurance is not required by Ohio law, but some lenders or lessors may require it for financed vehicles.

When considering the cost of gap insurance, it's important to weigh the potential benefits against the additional expense. Gap insurance provides valuable protection in specific situations, such as when an individual has a small down payment, a long-term loan, or a vehicle that depreciates quickly.

Where can you buy GAP insurance?

If you're buying a new or used vehicle in Ohio, you may be offered Guaranteed Auto Protection (GAP) insurance. This type of insurance covers the difference between the value of your vehicle and the balance on your loan if your car is stolen or written off. GAP insurance is particularly useful if you've made a low down payment on your vehicle, have a long payoff period, or are buying a car that depreciates quickly.

You can buy GAP insurance from several sources, including insurance companies, car dealerships, auto loan lenders, banks, credit unions, and specialised providers. It's important to shop around, as prices can vary significantly. Buying GAP insurance from a dealership is likely to be more expensive than adding it to an existing insurance policy. Some insurance companies may only offer a limited amount of time to purchase coverage, so it's best to buy GAP insurance as soon as possible after buying a new car.

• Auto Club Group – ACG (AAA)
• Auto Club Enterprises (AAA)
• Frankenmuth Insurance
• CSAA Insurance (AAA)
• Westfield Insurance
• Liberty Mutual
• Midvale Home & Auto

Frequently asked questions