Gap insurance helps cover the gap between what you currently owe on a car and what the value of your car is given in the event your car is stolen or totaled. Gap insurance is a great insurance add-on for peace of mind if you are leasing or purchasing a new car.
- Is Gap Insurance Worth It
- What Doesn’t Gap Insurance Cover
- How Gap Insurance Works If You’ve Paid Off Your Car Loan?
- How to Get Gap Insurance?
- How Much Is Gap Insurance?
- Loan/lease Coverage
Is Gap Insurance Worth It?
Yes. If you’ve purchased a new car or are just leasing, gap insurance is definitely worth it.
Consider getting gap insurance if you:
- Purchased your vehicle with loan terms longer than 4 years
- Spend a lot of time driving which can quickly rack-up your mileage
- Are leasing a newer vehicle
- Didn’t offer a large down-payment on your car purchase/lease
As soon as you drive your new car off the lot, your car immediately depreciates in value, and is classified as a used vehicle. The term “depreciation” means your car is worth less now than when you purchased it. The depreciation of your vehicle increases as time passes.
For example, if you purchase a car for $40,000 today with a monthly payment of $450. As soon as you drive your car off the lot, depreciation will kick in, and shortly after that your car may be worth $35,000. After a few more months (12 months) pass by, your car could now be worth $31,000.
While depreciation of your car continues to decline, your monthly payments remain the same. At the end of 12 months, your car loan’s balance might be as much as $37,000, depending on interest rates. Now, you owe ($37,000) more than what your car is worth ($31,000), and if your car is totaled or stolen, this could be a major issue because you may be held responsible for the remainder of the balance ($6,000).
That is when gap insurance kicks in and saves the day.
What Doesn’t Gap Insurance Cover
Gap insurance covers your car when it’s totaled or stolen, but it does not cover bodily injuries or property damaged in an accident.
The gaps that gap insurance doesn’t cover:
- Medical expenses. Gap insurance will not cover any bodily injuries or medical costs as a result of a car accident.
- Property damage. Did your car hit a light pole or public fence during a major accident? Gap insurance may not cover damage to the property!
- Deductibles. You are still responsible for your entire deductible. Gap insurance won’t cover any deductibles if you’re in an accident, even if your car is deemed to be totaled.
- Mechanical repairs. Gap insurance will not cover any mechanical repairs needed to your new or leased vehicle.
When choosing your gap coverage and car insurance, be sure to read all coverage fine-print and financial responsibilities as a driver. You don’t want to be surprised with any fees after you’ve been in an accident or had your car stolen.
How Gap Insurance Works If You’ve Paid Off Your Car Loan
Gap insurance works by covering the cost of your loan or lease when your car is considered to be totaled or is stolen, but only if you owe more than the car is worth. If your car is nearly paid off, you don’t need gap coverage car insurance because your comprehensive coverage should pick up the slack.
How to Get Gap Insurance
Getting gap insurance on a car is as easy as talking to your dealership or calling your car insurance company.
Three places to obtain gap insurance:
- The car dealership or lender: usually as an one-time fee which could be rolled into your loan monthly payments
- An online vendor that offers gap coverage options such as Gap Direct or Gap Insurance Quotes
- Your insurance company as a part of auto insurance policy if they offer gap insurance. Reference the list of gap insurance companies
Sometimes, getting a quote from all three places on the coverage that seems most appropriate for you and your car may be the best place to start. Shopping around for the best quote is always advisable since different vendors assess risks differently.
>>MORE: Does Geico Offer Gap Insurance?
How Much Is Gap Insurance?
Your auto insurance carriers usually charge about $20-30 a year for gap insurance, which is probably the cheapest option for you. They might also require you to buy both collision coverage and comprehensive coverage.
If you buy gap insurance from an online vendor, it usually costs around $200-$350 as an one-time fee.
Lenders usually charge $400-600 for gap insurance, which is the most expensive option. On top of that, if you add that to your car loan, you also pay interest on it.
Loan/lease Coverage
Before leaning on your dealership for gap insurance, be sure to give your car insurance company a ring. Coverage from them may end up being less expensive in the long run. Your car insurance company may have several variants of gap coverage for your car, often called loan/lease coverage.
Loan/lease coverage is very similar to gap insurance, where the main differentiator is the amount of coverage. If your car is deemed totaled or is stolen, loan/lease coverage may only cover a percentage of what your car is worth, and you may be liable for the remainder.
Finding the right coverage for you and your car may take some research. However, it is well worth it in the end when you have peace of mind and proper coverage for your car!