Gap insurance coverage may apply if you're underwater on your auto loan (meaning, you owe more than the car is worth) when your vehicle is stolen or totaled. "Totaled" means that repair costs exceed the value of the vehicle. Whether a vehicle is declared totaled depends on state laws and your insurer's discretion.
Keep in mind that, in the above scenario, the car insurance reimbursement goes completely to your auto lender to pay off a car that's no longer driveable. If you think you would need help buying a new car after yours was totaled, you might want to consider purchasing new car replacement coverage. Some insurers sell loan/lease gap coverage and new car replacement coverage together, as a single add-on to a car insurance policy for a brand-new vehicle.
If you're considering buying gap insurance, it's important to remember that this type of coverage may only be available if you're leasing or financing a new vehicle. Then, think about how much you owe on your auto loan versus the value of your car. (You can get an estimate of what your car is worth by checking a site like Kelley Blue Book.) Do you owe more than your car is worth? Could you afford to pay the difference out of pocket if your car is totaled?
If you're paying off a car loan, it's possible that your car is worth less than what you owe on your loan. This is also known as being "underwater" or having negative equity. Being underwater on your car loan typically means that if your car is totaled or stolen, standard insurance will only cover the value of the car, not your full loan payoff amount.
But that's not the case when you have guaranteed asset protection, or gap, insurance. With gap insurance, the money to pay off your outstanding loan balance comes from your insurer, and not out of your pocket.
Some insurers may also require you to purchase collision and comprehensive coverage before getting gap coverage. If your car is used, or you aren't the original owner, you typically won't be able to buy gap insurance at all.
Should You Buy Gap Insurance?Gap insurance is worth looking into if the amount you owe on your loan is higher than your car's value, or you're worried that may happen. You're likely to go underwater if any of the following scenarios applies to you:
Regardless of the cause of your negative equity, gap coverage is probably worth purchasing if you can't afford to pay back the difference between your loan amount and your car's value. The insurance is unlikely to make a big dent in your pocketbook (policies can be had for as little as $20 per year, according to the Insurance Information Institute), but they can save you a bundle if you end up needing the coverage.
Where Can You Buy Gap Insurance?Before you start hunting for a quote, check to see if gap coverage was included in your financing. This is likely to be the case if you leased your vehicle.
If your financing didn't include coverage, the easiest way to buy it is through your current auto insurer. You can start by contacting the company to request a quote on the additional insurance coverage. Adding gap insurance to your policy is generally very affordable, and shouldn't be too much of a hassle to add to your policy.
If gap insurance isn't available through your current insurer, you may want to consider switching companies or going another route. Several nationwide and online insurance companies offer gap coverage, including Progressive, which charges an average of $5 per month, or $60 per year. You can also go through a dealership, but you could end up paying a price on the higher end of the spectrum.
Saving Money on InsuranceShopping around for the best quote can save you money on insurance coverage, and so can working on your credit. In many states, insurers are allowed to consider your credit when deciding to take you on as a customer and when deciding your rates. Where it's considered as a factor, better credit can help you nab lower premiums.
If you're not sure what condition your credit is in, consider pulling your free credit report and scores before contacting your insurance company. Taking the extra step to improve your scores could ultimately save you money on your car insurance premiums, not just gap insurance.
If you're buying or leasing a new car, you can get gap insurance from the dealer or your auto insurance company. Usually, gap insurance is optional if you're financing a purchase, but it might not be optional if you're leasing a vehicle.
When you buy or lease a car, the dealer will likely ask if you want to purchase gap insurance when you discuss your financing options. Buying gap insurance from a dealer can be more expensive if the cost of the coverage is bundled into your loan amount, which means you'd be paying interest on your gap coverage.
You can typically add gap coverage to an existing car insurance policy or a new policy, as long as your loan or lease hasn't been paid off. Buying gap insurance from an insurance company may be less expensive, and you won't pay interest on your coverage. If you already have car insurance, you can check with your current insurer to determine how much it would cost to add gap coverage to your existing policy. Note that you need comprehensive and collision coverage in order to add gap coverage to a car insurance policy.
You can typically buy gap coverage for a used car or new car at any time as long as the loan or lease isn't paid off, though some insurance companies may only offer a limited amount of time to purchase coverage.
Please note: The above is meant as general information to help you understand the different aspects of insurance. Read our editorial standards for Answers content. This information is not an insurance policy, does not refer to any specific insurance policy, and does not modify any provisions, limitations, or exclusions expressly stated in any insurance policy. Descriptions of all coverages and other features are necessarily brief; in order to fully understand the coverages and other features of a specific insurance policy, we encourage you to read the applicable policy and/or speak to an insurance representative. Coverages and other features vary between insurers, vary by state, and are not available in all states. Whether an accident or other loss is covered is subject to the terms and conditions of the actual insurance policy or policies involved in the claim. References to average or typical premiums, amounts of losses, deductibles, costs of coverages/repair, etc., are illustrative and may not apply to your situation. We are not responsible for the content of any third-party sites linked from this page.
Comprehensive auto insurance is full coverage. It includes collision insurance but also covers every unexpected calamity that can destroy a car, from vandalism to a flood. But it pays the actual cash value of the car, not the price you paid for it or the amount you may still owe on the loan. Gap insurance covers the difference.
Therefore, you need gap insurance if there is indeed a gap between what you owe and what the car is worth on a used-car lot. That is most likely to occur in the first couple of years of ownership, while your new car is depreciating faster than your loan balance is shrinking. You can cancel the gap insurance once your loan balance is low enough to be covered in full by a collision insurance payment.
Think of it as a supplemental insurance policy for your car loan. If your car is wrecked, and your comprehensive auto insurance policy pays less than you owe the lender, then the gap policy will make up the difference.
Sometimes. Your best bet is to call your auto insurance company and ask whether you can add it to your existing policy. Your insurer should be able to tell you what your options are and how much adding gap coverage may cost. Be sure to compare the best car insurance rates to find the right option.
You can get GAP insurance for both new and used cars bought from dealerships or private sellers. However, all GAP insurance policies will have age and mileage restrictions that your car must meet to be eligible for cover.
These rules were introduced by the Financial Conduct Authority (FCA) in 2015 because of concerns that customers at car dealers were overpaying for GAP insurance, without really knowing what it was or that they could buy it elsewhere.
Dealers now have to give customers full and transparent information about GAP insurance before selling a policy. Information they have to make clear to you includes the total cost of the policy, the length of the cover, its features and exclusions, that cover is optional and that it can be purchased elsewhere.
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