If you are leasing a car or have a negative balance on your auto loan, gap insurance offers useful protection against out-of-pocket expenses. Standard auto insurance payouts frequently fall short in the event of a total loss, leaving a discrepancy between the amount you receive from the insurance provider and what you pay the leasing company or lender. You can fill the gap with the aid of gap insurance, hence the name.
You can check with a car dealer, your existing auto insurance company, or other auto insurance companies to obtain the coverage you require. To obtain the best bargain, it’s crucial to weigh the advantages and disadvantages of each of the aforementioned gap insurance companies.
Main Points
In the event of a total loss, gap insurance pays the difference between your normal insurance policy’s payout and the amount still owed to your financial institution or leasing company.
Gap insurance is available from auto dealers, your existing auto insurance company, and other auto insurance companies.
Check your contract before assuming that gap insurance is frequently optional for purchase and compulsory for leasing.
Instead of purchasing gap insurance from the dealer directly, it is important to compare prices and shop around to discover the best bargain.
How Does Gap Insurance Work?
Gap insurance is a sort of auto insurance that fills in the difference between what your regular auto insurance would pay in the event of a total loss and the amount you still owe your financial institution or leasing company. Due to the fact that normal collision and comprehensive insurance will only pay out the vehicle’s actual cash value (ACV) at the time of a loss, regardless of how much you still owe on your loan or lease, it is frequently necessary.
It’s usual for customers to be inverted on their car loans for a few years, meaning they pay more than what the vehicle is worth, because modern automobiles depreciate quickly. If your car is totaled or stolen within that time, gap insurance helps to assure you won’t owe a big sum.
Note
Under a different name, some insurers provide comparable coverage. For instance, Progressive offers loan/lease payback coverage, which accomplishes the same thing but covers just 25% of the value of your car.
How to Use Gap Insurance
You should get in touch with your gap insurance provider as soon as you find there is a discrepancy between the payment that you receive from your normal auto insurance provider following a total loss and what you owe the financing or leasing business. The claim will then be examined. If accepted, the insurer will settle the outstanding balance up to the policy’s upper limit.
Note
Your conventional insurance policy’s deductible is often not covered by gap insurance. However, it’s worth verifying your policy’s conditions or consulting your provider because some gap policies contain deductible coverage.
Let’s examine a case in point. You would report a stolen car if you walked out in the morning and it wasn’t there. You could submit a claim with the insurance provider to recoup the charges if you weren’t able to reclaim it. The ACV of the car would only need to be covered at the time of the loss, though, according to your primary insurer.
Suppose you paid $30,000 for the car and had a loan balance of $25,000 to pay. However, if your car’s ACV is $20,000, your primary vehicle insurer will only pay out that amount, presenting you with a $5,000 shortfall. At that point, you would contact your gap insurance company and submit a claim for the extra $5,000.
How to Find Gap Insurance
After a total loss, the risk of introducing salt to injury is decreased with the aid of gap insurance. On an upside-down car loan or lease, you won’t be concerned about paying more than the insurance payout. Where can you go, though, to get insurance? The alternatives are as follows.
The purchase of gap insurance through your insurance provider
You can inquire about gap insurance from the organization that manages your current automobile insurance policy. Working with one firm for all of your auto insurance requirements may be simpler. Gap insurance isn’t offered by all insurance providers; for instance, Geico doesn’t offer this coverage.
Note
To be sure you’re getting a good bargain, it’s a good idea to compare estimates from a minimum of three other insurance companies, even if your current provider offers gap coverage.
Online gap insurance purchase
How do you compare gap insurance prices? It’s simple—many companies have internet listings for their gap insurance options. Although specifics and accessibility may vary by state, well-known businesses that provide gap coverage online includes Liberty Mutual, AAA, Nationwide, travelers, as well as State Farm. Find the best offer for your needs by comparing quotations side by side after obtaining several.
Gap Insurance Purchased From the Dealership
You’ve probably been offered gap insurance if you’ve purchased or leased a car from a dealership. Dealers frequently aggressively advise you to get it from them and may provide a number of justifications. To ensure you’re obtaining the best cost and protection for your needs, it’s wise to shop around when purchasing any sort of insurance, as is the case with all other types of insurance.
Does Gap Insurance Have To Be Bought?
Your circumstances will determine whether you need gap insurance or not. Most of the time, gap insurance is necessary while leasing a car but not when financing one. However, be sure to carefully read your agreement as there can be exceptions.
The second consideration is whether you should purchase gap insurance if it is not necessary. Consider what would occur if you didn’t have insurance and your car was stolen or totaled before making a decision. You’ll need to think about the vehicle’s ACV along with how much you still owe on the loan to determine that.
Despite the fact that depreciation varies depending on the brand, model, and year of a vehicle, new cars typically lose 60% of their value in the first five years.2 Maintaining gap insurance is frequently advisable until your debt is equivalent to the value of the vehicle. You might also want to take things like your driving record and the level of crime in your neighborhood into account.
Note
The price of gap insurance may be rolled into your lease or finance arrangement by some dealers and financial companies. Before acquiring additional coverage, be sure to carefully read the agreement.
Loan or leasing coverage versus gap insurance
Although loan/lease payback coverage and gap insurance are similar, there may be some significant distinctions. Like gap insurance, mortgage/lease coverage aids in covering the discrepancy between the amount your insurer pays out and the amount you still owe on your lease or loan.
However, it’s crucial to read the fine print because loan/lease cover may have restrictions or other nuances. For instance, Progressive’s loan/lease payback coverage will only cover up to 25% of the value of your car. You would still be accountable for paying certain expenses out of pocket if you owe more than 25%.
How to Lower Gap Insurance Costs
The best approach to save money if you need gap coverage is to avoid purchasing it from the dealer. The cost of gap coverage from the dealer will normally be added to the lease or loan, meaning you will probably have to pay interest on it.
You can save money by purchasing gap protection from an insurance provider by avoiding paying interest upon the cost of the coverage. Additionally, it’s simple to cancel the coverage if you decide you no longer need it and you may shop about to discover the best deal.
It’s crucial to make sure you genuinely require gap coverage before buying this kind of insurance. To find out if gap coverage is already included in your policy, check with your insurance provider. Do the math next to see if you would owe a sizable sum in the case of a total loss. You should cancel the coverage if you discover that the price of gap insurance has become unjustifiably high.
Answers to Frequently Asked Questions
How much does gap coverage cost?
Where you purchase it and your circumstances will affect how much gap insurance costs. One insurance company study indicated that adding gap insurance to a vehicle insurance plan cost between 5% and 7% of the total and collision premiums, which was much less expensive. Gap insurance purchased through dealerships cost between four hundred dollars and nine hundred dollars. It is dependent on a number of variables, including your state of living, driving record, age, and more, as with other insurance costs.
How can I tell whether my vehicle has gap insurance?
Check your lease or purchase agreement at the dealership to see if you have gap coverage if you are unsure. Your contract will have a line item for gap coverage if you obtained it from the dealership. Next, inquire about your gap insurance policy status with your present motor insurer. Finally, if you already signed up with a different insurer, you can check your records or get in touch with them to verify if it’s still in effect.
How do I terminate my gap coverage?
By getting in touch with your policy provider and making a request, you can cancel gap insurance. Check your lease or purchase agreement, though, to make sure gap insurance isn’t required before proceeding. Make sure you are aware of the expenses you would incur in the case of a total loss if you do not have this coverage. After paying for premium you won’t use, you may be eligible for a partial return if you decide to cancel your gap insurance.
