What is gap insurance?

Gap insurance is an optional auto insurance coverage that will help you to pay for your auto loan if your vehicle is stolen or totaled and you happen to owe more than what your automobile is worth. Sometimes you may hear gap insurance referred to as lease / loan gap auto insurance coverage. Gap insurance coverage is only available if you are the original loan holder / leaseholder on a new car. Gap insurance will help you to pay the gap between the depreciated value of your vehicle & what you may still owe on the automobile.

What is gap insurance and what does it cover

What’s gap insurance used for? In short gap insurance is used to cover the depreciated value that was lost over time. Gap insurance is used in conjunction with collision and comprehensive auto insurance.

GAP (Guaranteed Asset Protection) insurance is an optional auto insurance coverage. To help you to understand GAP Insurance more. Let’s first look to understand a typical auto insurance policy. The vehicle you drive is covered for the actual cash value (ACV) or the depreciated value at the time you make an auto insurance claim. GAP insurance is optional auto insurance coverage. It will provide supplemental coverage for whatever the difference is between the actual cash value (ACV) of your vehicle & the amount you owe to your lender at the time you make your claim. GAP should allow you enough money to cover the difference of what is owed for the car & what your auto insurance company pays out for the accident.

Do I need gap insurance

Gap insurance is an insurance product that’s great for particular drivers. Some people may want to skip it, if it doesn’t benefit them. Let us say you made a very large down payment on your vehicle, this is going to lower the chances of you being upside down on your auto loan at the time of an accident. 

Purchasing gap insurance will make sense for a few different scenarios. We go over a few below; 

• If put down less than 20% on your auto loan when you purchased your vehicle. 
• You have a loan payoff timeframe that is 5+ years.
• You have a vehicle on a lease.
• The vehicle you purchased has a history of depreciating rapidly.
• Your vehicle is used heavily and a high number of miles are driven each year, which will make your vehicle depreciate very quickly. 

If you have a tiny bit of negative equity in your car, gap insurance isn’t always an automatic purchase. Gap insurance coverage, much like other forms of insurance, does make the most sense for the drivers who can not handle a worst-case scenario in different circumstances. 

Lenders very rarely will require that you buy gap insurance to obtain financing. This is according to the Federal Consumer Financial Protection Bureau. But, If the auto dealership suggests otherwise, the Federal Consumer Financial Bureau says you should contact the lender personally to verify if this fact is true or not. 

Often times you will find gap insurance within automobile leases. It’s a great idea to check your contract before getting additional coverage.

Is gap insurance worth it

If you are still asking yourself if gap insurance is worth it. It really depends on your personal situation. Gap insurance will go into effect if you experience a complete loss. For example theft or a covered accident that declares your vehicle a – total loss. If you do not have gap insurance and are upside down on your auto loan this could mean you are compensated for thousands less if it is a confirmed total loss.

Gap insurance could be worth it to you if you fall in one of the following categories; 

• You bought a vehicle with 0 down or a low down payment
• The loan term is 48+ months.
• You drive very often causing rapid depreciation.
• You lease your vehicle.
• They type of vehicle you drive depreciates faster than normal. 

How much does gap insurance cost

Auto insurers usually charge only a small amount a month for gap insurance. Typically around $20-$40 annually. The cost really depends on individual qualifications like your vehicle value. You will have to buy comprehensive and collision coverage in combination with gap insurance. 

The majority of lenders have a flat fee of around $500 to $700 for gap insurance. If you finance your vehicle through your local credit union there is a good chance gap coverage will be less. Please keep in mind, if you decide to add the coverage to your auto loan, you will also pay interest on you gap coverage.

How do I know if I have gap insurance

You can check in two places to see if you already have gap insurance. First check your existing auto insurance policy. As well as the terms of your auto lease or car loan. Gap coverage is sometimes sold as an add-on from the auto dealership when you purchase a vehicle, so please check to see if you may already be paying for it before you add any extra insurance coverage.

How long does it take for gap insurance to pay

The time it will take for the insurance company to pay out a claim will depend on a few factors. These factors will be based on your states regulations & the overall complexity of your insurance claim. On average insurance companies pay out gap insurance claims in 30 to 45 days after accepting the claim. 

If you have additional questions regarding gap insurance please reach out to one of our wonderful agents. They can help you determine whether or not gap insurance is right for you and if you have time, see if they can get you better auto insurance as well.

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