Gap insurance coverage is an optional car insurance policy that pays the difference between what you owe on your vehicle and its worth at the time of a total loss.
Gap insurance is an effective way to safeguard yourself financially in the event of a crash or theft. But before you purchase it, be sure to determine if you actually require it.
It pays the difference between the actual cash value of your vehicle and what you owe
Gap insurance coverage is an optional car insurance policy that helps cover the difference between what you owe on your loan or lease and the actual cash value of your vehicle. This can be advantageous if you owe more than its actual worth and would otherwise need to shell out of pocket for a totaled vehicle.
Gap insurance is usually added to collision and comprehensive coverage on new vehicles within 30 days of purchase, although drivers are not obliged to purchase it if their car is older.
Gap policies should only be utilized if you are financing or leasing a vehicle, as the value of the car depreciates rapidly after leaving the lot, leaving you with an enormous gap between what you still owe on the loan and its actual cash value.
Gap insurance can be purchased through either your auto insurer or at a dealership. Unfortunately, buying it through the latter usually adds onto your loan and therefore may be more expensive than going directly through your insurer for coverage.
In most cases, you cannot add gap insurance to your current auto policy or modify an existing gap policy unless your lender allows it. Be sure to consult with your lender or lessor first and make sure you are not upside down on your loan (i.e., owing more than the vehicle's ACV).
Many drivers are unaware of the depreciation that occurs to their new cars after some time has passed. As a result, they may find their vehicles worth up to 10% less than they paid for them after just a few months or years of ownership.
To determine if you require gap insurance, compare your car's estimated worth to your current loan balance or monthly payment. Do this by estimating how much the car will be worth after each year of ownership until you fully pay off the loan or lease.
Estimating how long your loan will last is a wise idea. If it extends beyond 60 months, you may want to think about adding gap insurance as part of your insurance package.
It pays the difference between your deductible and the actual cash value of your vehicle
Gap insurance coverage is an optional car insurance policy that helps cover the difference between your deductible and vehicle's actual cash value in case it's totaled or stolen. The cost can be added onto your policy or purchased directly from a lender financing your car.
Many drivers opt for gap insurance coverage as a financial buffer in case something unexpected occurs to their car. It is especially crucial for those with cars that are financed or leased and owe more on them than what they are worth, or those with negative equity.
Due to their depreciating value, new cars often suffer financial setbacks after purchase. If your car is totaled, the money from an insurance settlement may not cover what remains owed on its loan or lease - leaving you with a large bill to settle out-of-pocket. When this occurs, getting back on track financially can be challenging.
To avoid this situation, make sure you purchase gap insurance coverage when you buy your car and keep it until the loan or lease term is completed. Otherwise, the dealership or lender could cancel your coverage without warning, leaving you to cover any difference out of pocket.
Replacement cost insurance is another option that could provide compensation for your lost vehicle. With this plan, you are reimbursed to replace it with one of similar kind and quality without exceeding your deductible amount. Nevertheless, this option may not be widely offered and could increase the cost of your monthly premiums.
Therefore, you should inquire with your auto insurer about gap insurance and its cost based on individual circumstances to see if it makes sense for you. You can learn more about the price of gap insurance by comparing quotes online from multiple insurance companies to determine whether it's a good deal for you.
Debtors with a lot of debt should never risk getting into financial difficulty due to your car's value depreciating more than what can be paid off on its loan. Gap insurance is an option for those in this predicament, but not everyone finds it beneficial.
It pays the difference between your loan balance and the actual cash value of your vehicle
If your car has been totaled and financed, gap insurance will cover the difference between what you owe on your loan and its actual cash value (ACV). This differs from paying for your vehicle since ACV is determined based on similar vehicles in your area.
Financing or leasing a vehicle usually necessitates this coverage, but you have the option to purchase it through any insurer of your choosing. As an add-on to your current auto policy, this coverage usually costs between 5% and 15% of the car's market value.
Gap insurance coverage is typically purchased when you first take out an auto loan or lease agreement and can be cancelled once you owe less on the car than its actual cash value. This is especially true for newer models since they depreciate so quickly.
You can decide if gap insurance makes financial sense by reviewing your current circumstances. If you own an expensive, high-performance sports car with a low resale value and a large loan balance, purchasing gap insurance could make sense.
However, if your vehicle has a lower resale value and you owe less on it than its worth, gap insurance coverage may not be necessary. You should also cancel it if you no longer make payments on your auto loan or are getting ready to sell the car.
It's wise to periodically consult valuation guides such as Edmunds or Kelley Blue Book and compare your loan balance to your vehicle's Actual Cash Value (ACV) to determine if gap insurance coverage is still necessary for you.
Drivers who make a small down payment on their vehicle and then pay it off in installments over five years are particularly susceptible to the gap. This is because as you make smaller monthly payments, your ownership share in the car and debt shrinks.
It will become more challenging to escape the debt hole created by your loan if you experience an accident and your car is declared a total loss. Without gap insurance, you'll have to cover any remaining balance on your own.
It pays the difference between your loan balance and what you paid for your vehicle
Gap insurance coverage, also referred to as loan/lease payoff, is an add-on that helps cover the difference between your vehicle's value and what you owe on it. It can be purchased directly from an auto insurer or dealership and typically comes with an extra monthly payment on top of what you already owe for it.
If your vehicle is totaled due to an accident, theft, fire, flood or vandalism and/or other covered perils, you'll receive a settlement from your insurer for its value. Depending on your policy, this amount could be substantial but likely won't cover all of what owes on its loan or lease agreement.
When financing your vehicle, your lender may require gap insurance coverage in case of a total loss. Even though this is an optional feature, having this added protection can be an invaluable addition to your policy and save you a substantial amount of money over time.
Drivers with a high interest rate or long-term loan that may owe more than the vehicle is worth should take special note; this is especially pertinent to cars that depreciate rapidly during their first year of ownership.
Optional coverages are usually optional and can be cancelled at any time. It's wise to review your insurance policy prior to cancelling any add-ons. Moreover, you may be eligible for a refund on any unused portion of the policy that you prepay for.
If the value of your car is less than what you owe on it, consider cancelling gap insurance coverage. You can easily check this value online or through websites such as NADAguides to calculate the difference.
You could also sell the car and use that cash to pay off the loan balance. This is an efficient way to avoid having a total loss and is an alternative solution to using insurance settlements to pay off remaining balance on your loan.