You may have heard of gap insurance, also known as guaranteed asset protection (GAP). This type of auto insurance helps cover the difference between what you owe on your loan or lease and the value of your vehicle.
Gap insurance is an optional coverage for car owners that may make sense for you in certain situations. It’s important to understand what gap insurance is and how it works so you can determine if it’s right for your situation.
It protects you if your car is stolen or totaled
Car gap insurance is a type of protection that helps you if your car is stolen or totaled. It covers the difference between what your comprehensive or collision coverage pays for a totaled vehicle and what you owe on your auto loan or lease.
Gap insurance isn’t mandatory, but it can be a smart way to protect yourself. It’s also one of the best ways to save money on your car insurance.
If your car is stolen or damaged, you will most likely need to report it to the police. After that, you will need to file a claim with your insurer. This can be a stressful process. You should be able to speed things up by providing the company with everything it needs.
During the process, it’s important to keep copies of your police report handy. The insurance company will need this information in order to determine how much they will pay out for your car.
You can estimate the value of your vehicle by looking up Kelley Blue Book or National Automobile Dealers Association prices on a vehicle valuation site. Then, you can use this figure to compare it with the amount you still owe on your auto loan or lease.
This can help you decide whether or not gap insurance makes sense for you. It’s especially sensible if you have a car with a high depreciation rate or a large car loan.
Another reason why car gap insurance may make sense is if you have a small down payment or a long loan payoff period. Those factors can make it more likely that you’ll end up with negative equity on your car, which means you’ll owe more than it’s worth in the early years of ownership.
A small down payment and a long loan payoff period can be risky because your payments decrease less rapidly than the car’s depreciation. This can leave you with a large amount of debt on your new car if it’s totaled or stolen.
If you have a large car loan or a low down payment, it’s unlikely that gap insurance will make sense for you. Those scenarios aren’t as common as they once were, but they can happen with some drivers, so it’s important to be prepared.
It protects you if you owe more on your loan than your car is worth
Gap insurance is a type of auto insurance that protects you if you owe more on your loan than your car is worth. This is a situation that can be particularly serious for people who finance or lease their cars.
The first reason gap insurance is important is that it can help cover the difference between your car’s actual cash value (ACV) and what you owe on your loan. This gap usually arises if you have a high down payment, a long financing term, or if you purchase a vehicle that depreciates quickly.
You can calculate your car’s ACV by visiting Kelley Blue Book or Edmunds and comparing it to your loan balance. Then, you can decide whether it’s worth buying gap insurance.
If you don’t need it, you can cancel it once your car is no longer worth the amount of money you owe on it. This is especially true if your lender allows it, as you can often get a refund for the amount you paid up front.
However, you should only buy gap insurance if you’re sure you can afford to pay the difference between your car’s value and what you owe on your loan. If you aren’t sure, it’s always a good idea to shop around and compare quotes.
You also might consider gap insurance if you’re planning to put a large down payment on your car, or if you’re taking advantage of a dealership’s periodic car-buying incentives. These can result in you being upside down on your loan for a long time.
This is a serious situation, as your standard comprehensive and collision coverage will not pay out the full amount of your car’s totaled value. This can leave you with an enormous bill if your car is stolen or totaled in an accident.
Fortunately, gap insurance is an inexpensive way to protect yourself against this potential financial disaster. Many drivers don’t realize that it is required by many lenders and lease providers. If you’re concerned about this, you should look at your car financing documents and speak to your dealer or leasing company to find out if you’re covered for gap insurance.
It protects you if you lease your car
Whether you purchase or lease your vehicle, gap insurance is a great way to protect yourself in the event of an accident. It pays the difference between what your insurance policy will pay and what you still owe on the car after an accident.
Gap insurance is also known as guaranteed auto protection, or GAP, and it can be an excellent addition to your auto insurance policy. It can help you avoid being left out of pocket in the event of an accident or theft and will allow you to focus on your recovery instead of worrying about the financial consequences.
When you buy or lease a car, lenders typically require that you purchase comprehensive and collision coverage. These types of policies only pay out what the car is worth at the time of an accident or theft. Those payouts are often lower than you might expect.
The value of a car depreciates quickly, which can make it difficult to pay off your loan or lease when it’s time to move on to the next vehicle. In those cases, it can be tempting to skip purchasing gap insurance in the hope that your insurance policy will cover the rest of the cost.
However, gap insurance is a necessary part of a car financing or leasing agreement and can help you avoid being stuck in the middle. It’s not something you want to live without, so it’s a good idea to check with your lender or dealership to find out if it’s included in your auto financing or leasing contract and if it makes sense to purchase.
Most auto dealerships offer gap insurance. This is generally a one-time fee that’s added to your loan or lease. It’s a good idea to shop around for the best price, as this type of coverage can be quite expensive.
You can buy gap insurance in several ways, including at the dealership and directly from an insurance company. These policies are usually a little more expensive than those you can purchase from a dealership, but they can provide additional coverage and peace of mind in the event of an accident or theft.
It protects you if you have a low down payment
Car gap insurance is an affordable way to protect yourself from a large car repair bill if your car is stolen or totaled. It helps to cover the difference between your loan balance and the cash value of the vehicle if your comprehensive or collision insurance policy does not fully cover the full amount of your debt.
Gap coverage is especially important if you financed your car with a low down payment or a long auto loan term. These financing methods allow you to accumulate large amounts of “upside down” money that can add up to a significant deficiency on your car loan if the car is damaged or stolen and totaled.
In these cases, you’ll have to pay the deductible on your comprehensive or collision insurance before the actual cash value of your car will be covered. Then you’ll owe the remaining balance on your loan, plus the remainder of your deductible, unless you have gap insurance.
You may be able to cancel your gap coverage once you pay off the remaining balance of your loan or lease, but you must contact the insurance company before making that decision. Often, you can also get a refund of the amount of gap insurance you didn’t use when you cancel the policy.
The quickest way to see if you already have gap insurance is to check your car’s Kelley Blue Book or National Automobile Dealers Association value, as well as the current balance on your auto loan or lease. You can also call your car insurance company to ask whether they can add gap coverage to your existing policy.
Ideally, you’ll want to purchase gap coverage as soon as possible after you buy your car. This will help to minimize your financial losses if your car is stolen or totaled, because you’ll be able to take advantage of your insurance payouts sooner than later.
However, you should also remember that gaps can be expensive. Some insurers charge significantly higher prices than others, so it’s worth comparing prices and shopping around before you decide to purchase gap insurance.