Should I Buy Gap Insurance From the Dealership or From My Auto Insurance Company?

Feb 10, 2021 | Personal Insurance

If you are getting insured for the first time, drivers might encounter the words “gap insurance”. Many people wonder about this specific term while some don’t know it at all. Insurers would, of course, introduce this type of coverage to you if you ask for a rundown about it. 

In Denver, Colorado (like any other US State) people either drive to work or carpool. With so many vehicles out there, the number of car accidents greatly increases. Being insured by a reputable insurance company is a must. If it happens that you are driving a new leased car, getting covered by gap insurance is a wise decision.

You may notice that your car dealer also offers the same thing to their clients. Especially if you are leasing a car, you might have to really know the specifics. Since both parties offer the same thing, the issue is which among these two should you get your gap insurance? 

Gap Insurance Pays For The Difference

The keyword is gap. Gap insurance helps pay the difference between what you still owe from your lender and the vehicle’s actual depreciated value. Contrary to the literal meaning, the gap in auto insurance means “guaranteed asset protection”. The simplest way to put it is that it fills in the gap or the difference.

For instance, you are leasing a car and it gets damaged really badly. The repair costs are worth more than the car’s value. Your insurer declared it as totaled. However, you still owe your car dealer a lot of money. Now, you are worrying about how to pay for the remaining balance.

Since the word “lender” is mentioned, it is clear that people who typically buy this coverage are drivers who leased their cars. It protects the insured people from paying more than what the car is worth after it gets totaled. You must bear in your mind that this coverage is always just an option. 

What Areas Does Gap Insurance Cover?

The moment you drive your car the depreciation value starts. Imagine how often you drive your car and the more you use it, the more it loses its value. It would make a big difference when your collision and comprehensive coverage starts to apply. This is where gap insurance comes in.

Knowing how gap insurance works is a fairly easy thing. However, it is also essential that you are aware of the extent that this coverage spans. The common question that people have is “What does gap insurance cover?” You must remember that gap insurance pays for the vehicle only. Any damages regarding other properties and physical injuries are not included.

Gap insurance comes in handy when the insured person suffers a total loss. The term “total loss” does not only refer to getting the vehicle damaged from collisions and accidents. You can also suffer from it if your car gets stolen.

It is meant to supplement your collision and comprehensive coverage. These types of coverages pay for the actual value of your car. They don’t have anything to do with your loan. Any amount that you owe from your lender will not be taken care of. You will have to pay out-of-pocket if you are not covered by gap insurance.

How Does Gap Insurance Work?

For example, you are driving a brand-new car for the first year. You got it from your car dealer through an auto loan. However, when you neared an intersection, you got into an accident. The other party was found at fault and paid for your expenses with his liability insurance. Even so, the car was damaged beyond repair and it was declared as totaled.

Gap insurance steps in at that time. Your car loses value every time you drive around. Suppose you got in an accident. If your car’s value was already depreciated at $20,000 then your collision coverage will reimburse you with the same amount, minus your deductible. If the loan is not yet settled and you still owe $25,000, then gap insurance will pay for the remaining $5000.

Where should I buy GAP insurance?

Insurance companies and car dealerships are competing in selling GAP insurance. Although both have their own advantages, you can’t find the best in one place after all. Depending on the person, someone might find one condition disadvantageous for him, while another feels that he is getting benefits.

Getting gap insurance is one thing, choosing where to buy is another. Even if they are different parties, the services that they offer are the same. Of course, there are a lot of differences as well.

One of the things that you might need to consider in buying gap insurance is the price. Though you may find one of the two cheaper than the other, you have to weigh the pros and cons of each one. Remember that there is no best deal that is being offered, only the one that best meets your needs and the most comfortable for you.

Car Dealerships Offer Gap Insurance

Though car dealerships may offer you the same services at higher prices, it is not without its good points. There is always something good in everything. Car dealerships might hold advantages regarding some aspects that might be a headache for insurance companies.

Insurance companies give great attention to the number of claims that you make. It can make a direct impact on your policy, either your rates rise or your insurance gets canceled. These reasons vary depending on the situation, so there is no need to worry.

Versatility Of Conditions

As far as car dealerships are concerned, they don’t restrict their clients from switching auto insurers. Even if they switch, as long as the GAP policy with their dealership is maintained, they couldn’t care less. Whereas, in insurance companies, you need to stick with them until the end of the term. The question is, why did you pick that company in the first place if you don’t want their services, right? 

No Deductibles To Pay

There is also the matter of deductibles. Deductibles are a set amount of money that gets subtracted from the payout that your insurer will give you. If you are unaware, paying a deductible is a must for the insurance to kick in. However, paying for it is a great way to lower your premiums. Some insurance companies cover deductibles but car dealerships have no need for deductibles.

No Limits On Filing Claims

Another thing is that no matter how many times you make a claim, car dealerships won’t raise your rates or cancel your policy. Whereas, repeated filing of claims from insurance companies give the possibility of higher premiums and cancellation of your auto insurance. Filing claims frequently shows how high your risk is, that is why insurers raise your rates. However, if you are quite a careful driver, then you can maintain your low premiums.

Benefits of Buying From Auto Insurance Companies

When you are in a car shop, the usual scenario would start with you choosing your preferred car. Then, when settling the payment or financing talks, what follows after are the additional offers such as gap insurance. At the end of the day, you would be convinced to take the offer from the dealership.

That is where everything goes into a wrong turn. You are unaware that you could have saved more if you asked about the offer from an insurance company. If there is already a clause about the gap insurance in your policy, then maybe you just gained an addition to your bill. You must choose wisely.

The Amount That You Would Have To Pay Is Lower

If you first talk with your insurer about the gap insurance, they can offer you the lowest price that they can find. Shopping around is also a good way to find out about the rates. Gap insurance is not regulated. You might pay as low as $20 per year for this coverage.

Your car dealer can increase his commission by how much he likes. Simply put, gap insurance from car dealerships are too expensive. Besides, insurers can offer a wide range of discounts that can be bundled with other coverages that you need.

You can understand the use of it more

Insurers always provide their clients with a detailed explanation of their offers. They are the king of the trade after all. How gap insurance supplements your full coverage to the limits that it possesses, they can answer you. They will tell you how it works with other types of coverage to make the most out of it. Though car dealerships might also provide you with an extensive explanation, consider talking with your insurance provider first. 

Tips To Consider In Buying GAP insurance

In order to get the best value for your money, you have to consider some factors before buying gap insurance. You might want to check your car and ask yourself whether you should buy it. Only by weighing it properly can you decide.

Of course, getting covered by gap insurance won’t hurt you. With a little addition in your rates, you would get additional protection for you. Coupled with your full coverage insurance, it will be quite an impeccable deal. 

Assess Yourself If You Need It

Before getting gap insurance, you can check the car’s age and its possible value in the future. Consider the money too, that you still owe from financing a car. If you think that you can handle the brunt of it, then maybe it is okay if you don’t get covered by gap coverage.

If You Are Financing A Car

Of course, it is better to have gap insurance if you are leasing a car. Especially if you still owe a lot of money, getting into an accident insured is a big help. If you are not insured, losing your car while still paying for the loan is one big problem.

You should also consider if you have a lot of savings, apart from the money that you are paying for the loan. Making sure that you have enough to cover for the “gap” between your loan and the actual car’s value gives you one less worry.

The Car’s Age And Value Are Important

It is common sense that your car loses its value every time that you drive. Usually, you only need to be covered for the first two to three years or at least until you pay for the loan. Obviously, as your car ages, your loan decreases, and the need for gap coverage goes down with it.

Is It Worth The Money?

One of the crucial things to ask is if it is worth your money. You don’t want to waste it. There are several things that you may think about to know if it is worth it. These things can be decisions that you made in the past or you will make in the future. 

In asking this question, you might want to consider your capital and the interest of the loan. How long would it be before you are able to finish paying it? By making the right adjustments, then you would know if gap insurance is worth your money.

How Much Is Your Down Payment?

Expect that you will have so much to pay if you paid a low down payment. Your future monthly fees as well as the interest will be based on it. It is recommended that you pay a large amount so that the remaining amount will be easier to pay over time. If you are insured, even if the car gets ruined and you still have a large balance, gap insurance will cover it for you.

How Long Would Your Loan Last?

If it exceeds four to five years, then you may consider getting covered by gap insurance. If you have to pay for your car for five years and it gets totaled, then the amount must be quite large. That way, if you are insured, you can rest assured that it will not be difficult for you to fill in that gap.

How Many Miles Do You Usually Drive?

If you drive for long periods and reach long distances, your car’s value depreciates a great deal. Then, once your car gets totaled, the amount that you can get from your collision or comprehensive coverage will only be that depreciated value. Gap insurance is helpful if the car’s value is lower than the loan amount by a huge difference.

What Are Other Options Aside From GAP Insurance?

Although gap insurance provides protection if your car gets totaled or stolen, it isn’t the only option that you have got. There are other types of coverage that work the same way gap insurance does. But of course, there are a few differences between them.

These are only alternatives for gap insurance. They also vary depending on their availability. Since gap insurance is the most common choice, some auto insurance companies might not offer them. They may differ in terms of the vehicle, the time or age, and their extent.

Loan/Lease Payoff vs GAP Insurance

In terms of flexibility, loan/lease payoff is better than gap insurance. It is available at any time. For gap insurance though, it is only available for a short period of time when the car is still new. Moreover, unlike gap insurance, loan/lease payoff is applicable to any vehicle that has been titled before or not.

Of course, gap insurance has more advantages over it. Gap insurance covers the maximum amount of the “gap” between your loan and the car’s actual cash value (ACV). On the other hand, loan/lease payoff only covers 25% of the car’s ACV generally.

New Car Replacement vs GAP Insurance

If you’re worrying more about getting a new car, this coverage might be more apt for you. If your car gets totaled, your insurer will reimburse you with money to buy the same car model, minus your deductible.

Of course, the downside is that they will not pay for your remaining balance, unlike gap insurance. This may be a headache for you at some point. This also generally applies to drivers who own newer cars.

Final Say

Gap insurance provides you with protection when you suffer from total loss. Although it may not be handy if you are a responsible driver, we can never know if it will be in the future. Remember that as time passes, your car’s value depreciates and you can pay your loans gradually. Gap insurance is the most useful during the first five years of having your car. You can drop it after you have finished paying for your loan. After all, all it insures is to fill in the difference.

To know about the details, asking your insurers would be the best thing to do. Know all your options first to find the best deal for you. Although you can get it from car dealerships, communicating with your insurance provider first is a lot better. Keep in mind that amongst the many options that you have, choose the one that suits your circumstances. Making the best decision is like winning the lottery. The reason is that you know that you made the right bet.

At Advantage Insurance Solutions, we are ready to offer you the best quotes that you can find. Let us offer you our services and help you with your queries. Ask any question, and we’ll provide you with a satisfactory answer. Call us today!