In the event that a burglar makes off with your recently financed or leased automobile, gap insurance might help safeguard your other possessions. In the event that you total the automobile during the first couple of years of ownership, it may also be beneficial to get this coverage. Automobiles quickly lose their value, and collision and comprehensive coverage do not offer the necessary level of protection for brand-new automobiles. In the event that you are involved in an accident shortly after purchasing your vehicle, the reimbursement from your insurance policy most likely will not be sufficient to pay off the balance of your auto loan. In many instances, gap insurance is able to fill in that void.
The purchase of gap insurance is made available by several providers of auto insurance. It is common practice for them to include it as an endorsement or rider on your auto insurance; alternatively, you may be able to obtain it through a car dealership or a finance firm.Even while gap insurance makes perfect sense for newly purchased vehicles, you are free to drop coverage once your vehicle reaches a certain age. If you cancel your policy before it ends, you have the right to get a refund for any coverage you didn’t use.
Find out more about the operation of gap insurance and the possible effects it might have on you.
What exactly does “gap insurance” mean?
Guaranteed Auto (or Asset) Protection, often known as “gap insurance” or “loan/lease gap coverage,” is a type of insurance that protects newer automobiles that have been financed or leased. This type of insurance is offered by several insurance companies. The difference between the current value of your vehicle and the amount that you still owe to your lender can be covered by gap insurance in the event that your vehicle is damaged beyond repair or is stolen.
Cars degrade fast. A brand-new car’s value typically decreases by around 20% during the first year of ownership. Over the next four years, the vehicle’s value is expected to fall by around 15% per year. If your car is stolen or completely destroyed, the insurance company will only pay you the “actual cash value,” which takes into account the vehicle’s level of depreciation. For instance, if you purchase a car with a loan of $15,000 and it is totaled after one year, the insurance company would most likely not pay more than $12,000 for the vehicle. This is due to the fact that they are accounting for a 20% decrease in value. When you subtract 20%, or $3,000, from $15,000, the result is $12,000; this is the anticipated actual cash value of the vehicle after a year.
If you still owe more than $12,000, you are responsible for paying the additional amount that is owed on top of that. On the other hand, if you have gap insurance, the coverage can help you pay off the rest of your loan balance.
Is it necessary to have gap insurance?
When you lease a vehicle, the leasing company will often ask you to carry gap insurance on your own. In the majority of instances, it is already included in your rental agreement at no additional cost to you. If it is not included, you have the option to purchase it as an add-on.
When you finance a car purchase, gap insurance is not often required by the lender. Nevertheless, you may be able to purchase the coverage from either the lender or the auto dealer. Gap insurance is frequently sold by lenders and vehicle dealers for a predetermined fee ranging from $500 to $700. If you get the coverage through a dealer or lender, however, they may include it as part of your loan, which may result in an increase in the total cost.
If the policy is sold by the employer, you can frequently get it for a much lower price through a car insurance provider. In most cases, auto insurance contracts come with riders or endorsements that allow customers to purchase gap insurance.
Even if your lender does not require you to have gap insurance, it may be in your best interest to get the policy nevertheless. Do so if the amount that you owe on the auto loan is greater than the value of the vehicle.
What Doesn’t Get Covered by Gap Insurance?
Even if you get gap insurance, it won’t cover all the fees you could be responsible for paying to a lender or leasing company if anything happens to your vehicle. These additional fees may include the following:
- The insurance compensation does not take into account any previous damage, whether it was caused by storage, towing, or wear and tear.
- Remaining balances from earlier leases or loans are carried over.
- Costs associated with extended warranties
- Deposits for the security of a lease
- There are penalties for exceeding the allowed mileage.
- Late payments
- aftermarket additions to a vehicle, such as aftermarket stereos or aftermarket navigation systems.
When Is the Right Time to Cancel Your Gap Insurance Policy?
If you add gap insurance to your auto policy, you will be able to cancel it if the amount you owe on the car’s loan is less than the value of the vehicle. This often takes place after a period of around two years of payments. 5G insurance can also be cancelled if the loan is paid off early, the car is traded in, or the vehicle is sold.
Use either Kelley Blue Book or Edmunds to get a quick estimate of how much your automobile is worth.
If you lease a vehicle, the contract for the lease may stipulate that you are required to maintain coverage until the end of the term. Similarly, if a lender forces you to get a gap insurance, the financing contract may require you to maintain coverage until the debt is paid in full, even if you have paid it off. For further information, please review the loan or lease agreement that you currently have.
It’s possible that the gap coverage limit will be established by the leasing agreement, the insurance contract, or the insurance code of your state. If you bought gap insurance from a lender, you may have to pay an early termination fee when you make a claim for gap coverage.
How to Get Your Money Back from Your Gap Insurance Policy
You are eligible to request a refund if you decide to cancel your gap insurance policy during the coverage term. It is possible that the insurance company will not inform you that you are entitled to a refund, and it is quite unlikely that they will immediately repay you. Most of the time, you’ll be able to get a refund for the part of your coverage that you haven’t used yet.
There are certain organizations, such as Navy Federal Credit Union and Bellwether Community Credit Union, that provide you with the opportunity to receive a refund for gap insurance premiums paid if you do so within a predetermined amount of time. If you cancel your insurance within the first thirty days after it goes into effect, you should be eligible to get a full refund. The specifics are determined by the policies and regulations of the state.
If you obtained gap coverage directly from an insurance provider, get in touch with your insurance agent so that you may cancel the policy and ask for a refund. If you bought the vehicle from a car dealer at the time of the closure, you may have been required to pay an up-front charge that protects the vehicle for a number of years.
It is necessary to follow a few procedures in order to make a claim for a refund on gap insurance that was acquired from a vehicle dealership.
- Have the terms of your policy reviewed to see whether or not the cost of gap insurance is included in the financing of your vehicle. Get in touch with the dealer and ask for all of the necessary cancellation documents from them.
- In order to receive a refund, it is imperative that you be familiar with the miles that your car has accrued and that you verify this mileage. Obtain a statement disclosing the odometer reading from the dealer. To validate the mileage, you’ll need to utilize this form.
- Get in touch with the lender to get the paperwork you need to ask for a refund on the part of the gap insurance policy you didn’t use.
- If you are planning on getting rid of your vehicle, do not terminate your gap insurance policy until after the sale or exchange of your vehicle has been finalized. In certain circumstances, you may be able to communicate directly with the insurer. In other situations, the dealer will be able to give you the right paperwork you need.
- You will be required to provide the insurer with a number of items in order to cancel the gap insurance that was supplied by the dealership. This contains the paperwork you need in order to cancel, the forms you need in order to receive a refund, the odometer disclosure statement, and the proof of sale in the event that you are selling or exchanging the car. It is possible that you may be required to provide a copy of the payoff letter if you cancel the coverage after your auto loan has been paid off. This letter must provide specifics regarding the balance of the gap insurance.
What to Anticipate When Requesting a Refund from Your Gap Insurance Policy
Your insurance provider will terminate your coverage and give you a refund after all of the steps in the procedure have been completed. In most cases, you will get it in the form of a check. It is possible for the process of getting a refund to take as little as a few days or as long as six weeks.
Whoever provided you with the gap insurance in the first place will determine how long it will take for you to get your return. If, for example, it was given by a vehicle dealer rather than an insurance provider, then the process may take far longer.
Questions That Are Typically Asked
How Long Do You Need to Keep Your Gap Insurance Policy in Effect?
You should keep paying for gap insurance coverage until the amount you owe on your auto loan falls below the value of your vehicle. When you sell or trade a car, you are also able to terminate the coverage on that vehicle. You shouldn’t terminate the transaction until after the sale or exchange has been finalized. If a lease or financing deal requires you to have gap insurance, you should review the agreement to see how long you are obliged to keep the policy active.
How much does it cost to get gap insurance?
If you acquire gap insurance from a car dealer, the premium that you pay might range anywhere from $500 to $700. If you buy it directly from an insurance company, the insurer will determine your premium based on a number of criteria, including your age, your location, the real cash value of your automobile, and your claims history.
How Can I Determine Whether I Already Have Gap Insurance or If I Will Need It in the Future?
When you lease a vehicle, the business that leases the vehicle to you could include gap insurance in the contract. The conditions of the coverage should be outlined in this section. If the gap insurance is not included in the terms of your loan or leasing agreement, you will be required to purchase it separately from a car insurance provider. In the form of an endorsement or rider, these companies often add gap coverage to auto insurance plans.