What is Gap Insurance?
The value of your vehicle begins to depreciate the moment you drive it off the lot, especially for newer vehicles, and most cars lose 20% of their value within the first year of leasing. If you are in an accident and total your car, a standard insurance policy will only cover the current market value of your car, not the entire loan balance. If you're concerned about losing money, gap insurance can protect you against potential financial losses.
Gap insurance (guaranteed auto protection insurance) pays the difference between the value of your vehicle and the amount owed on it. Gap insurance is a viable option if you owe more on your financed vehicle than its current market value. Find out what gap insurance does (and does not) below.
What Is Gap Insurance Covered For?
Gap insurance, which is typically available on vehicles less than 5 years old, pays the difference between the depreciated value of your vehicle and the amount you still owe on your vehicle, subject to policy limits. Gap insurance protects you when your totaled car is no longer usable. If you are in an accident and your financed car is damaged beyond repair, gap insurance will pay the difference. If your vehicle is stolen, gap insurance will cover the cost of replacing it.
Gap insurance only protects you if your car cannot be repaired. As a result, gap insurance will not protect you if your car is involved in an accident but is still salvageable. Gap insurance only covers vehicle-related expenses; it does not cover bodily injury or death. Finally, gap insurance does not cover your collision or comprehensive deductibles.
Gap Insurance Benefits?
Gap insurance is only available to drivers who finance their vehicles. Gap insurance can be a worthwhile investment for drivers who owe more on their car than its current market value. To determine if gap insurance is a good fit for you, simply estimate your car's current value and subtract it from the amount you owe. You can find out how much your car is worth online at sites like Kelly Blue Book or by visiting a local appraiser. Aside from calculating "the gap," you may be a good candidate for gap insurance if any of the following situations apply to you:
It is required by your lease or loan provider. Your lender may require gap insurance to protect themselves from financial loss.
You put down less than 20% or chose a long-term lease. With a lower down payment or a longer lease, your loan balance decreases slowly, which means your vehicle may depreciate faster than you can pay it off. This is especially true during your lease's first few years.
You bought a high-end or luxury vehicle. These vehicles depreciate faster than the average car, so your loan amount will most likely be greater than the value of your vehicle.
You transferred negative equity from an old auto loan to your new loan.
You travel long distances in your car. Increasing the mileage on your car will cause it to depreciate faster.
Where Can I Purchase Gap Insurance?
Although your dealership or finance company may offer gap insurance on their vehicles, it is usually less expensive to buy gap insurance from your auto insurance company. Contact your agent today and find out about gap insurance.