Where Should I Buy Gap Insurance?

Oct 25, 2021 | Personal Insurance

What is Gap Insurance and where should I buy it?

According to research your car’s value automatically decreases the moment it leaves the car lot. And by next year, it will lose more than 20% of its value. 

For example, you acquired a car for $24,000, but the moment it rolled out of the store, you have already paid at least an extra $2,400 for taxes and fees. That is a total of $26,400, the amount of money you cashed out. Now, remember that, because this will shock you. 

After a year, you had a vehicular accident that totaled your car. If your insurer will ask the total value of your car, it would only appear to be at $19,200. But don’t forget your deductibles. Let’s put it to a modest $500. Bringing it down to a value of only $18,700. 

You paid the car dealership $26,400, but your car’s estimated value is only $18,700. What happens now?

How Does GAP Insurance Work?

Gap insurances are non-compulsory insurance for your car. This helps to cover and/or pay off your auto loan if there was an incident that your car was in an accident and was totaled. “Gap insurance or for other companies, also known as lease/loan gap coverage”. This kind of insurance is only available to the original buyer of the car or the original leaseholder of the said vehicle. Insurances like these help the owner get coverage in between the gaps where there is a depreciated value of your car and what you still owe.

If your insurance company sums up the value of your automobile, by a covered peril such as vandalism, tornado, hurricane, fire, accident, or even theft, the company will pay out the actual value of your vehicle, that is if you have a total and comprehensive and collision coverage. If the ACV or Actual Cash Value is smaller than the amount you owe on your loan or lease, the difference from this financial shortfall is the “GAP” you can have remaining to owe. 

Covered or Not Covered

In the event that your vehicle is taken or totaled, GAP Insurance will pay the distinction between the ACV of the vehicle and the current amount on your lease. At times it will likewise pay your standard insurance deductible.

Owners at the time think that if their cars were totaled, that the insurer will cover or replace it with the total amount they cashed out, or at least the advance payment they made. This cannot be further from the truth. You should as well have complete and comprehensive and collision insurance in place that can afford the gap coverage. If your car is on a lease, you might have been required to sign up for one.

Examples Of What Your Gap Insurance Will Not Cover:

  1. If payments are past due.
  2. Carryovers, if you have a previous loan or lease.
  3. If the security deposit were not withdrawn by the lessor.
  4. No upgrades or outside purchased installation was done on the car. 
  5. Faulty engine and transmission or car problems related to mechanical issues are not losses covered by your insurance.

Yes, car theft is covered. If your car was stolen and was not recovered, alongside your comprehensive insurance is CAR THEFT. This will help you out paying the actual cash value of your car.

How long does gap insurance last?

Your gap insurance will continue for the duration of your policy. Once your car loan has been paid off, or at least you have paid off your lease, you are not going to need this anymore. You should get a notification from your insurer that your Gap Insurance is not relevant to you anymore and they should be able to suggest cancellation, otherwise, you will be continuing your policy. 

If your car financing will be more than 4 or 5 years, it is advisable to get gap insurance. 

How much is the cost of a Gap Insurance?

The cost of your Gap insurance will depend on your bank or financial institution. Remember those car dealerships or lending companies will charge a high price for your Gap Insurance. These companies will usually have a flat rate between $500 to $700, these are the highest rates for these kinds of policies and you will pay for the interest since this will be added to your principal car loan.

On the other hand, insurance companies can charge an average of $20 to $40 per annum for your Gap Insurance if you bundle it with your outstanding insurance policy. If you are going to bundle it, this will increase your comprehensive and collision insurance cost by only 5% or 6% which makes it so much cheaper in comparison. However, this is available as standalone insurance, but the price should vary between $200 to $300.

Remember that there are certain factors that can change the price of your gap insurance:

  1. Vehicle’s Actual Cash Value
  2. Location
  3. Car’s age
  4. Claim History

But is it worth it? – A critical thing that you ask yourself especially before purchasing this kind of additional coverage is, “is it worth it?” If you are not, then you’re probably looking at this in the wrong way. This can be daunting at times, your inner voice always says, “I’m a safe driver…” or “what if I never needed it?” But allow us to tell you, that getting additional coverages such as this, is very crucial in your daily lives. 

How can I Purchase Gap Insurance?

As we discussed, gap insurances are not just available on your car dealers and financing companies, they are available as well in your insurance company where you got your car insurance, as long as you have a comprehensive and collision insurance policy in place. You can ask your insurer about gap insurance. Always remember to review first where you can get a better deal. For more information, click here

How to know if you have Gap Insurance

Gap Insurance is not a state-mandated policy like liability insurance is. There is a couple of ways for you to check if you have an existing Gap Insurance. This should be available for you to review on your existing car insurance and the terms and condition on your lease or running loan. Remember that this kind of policy is usually sold as an add-on from your car dealership when they are financing your car. So, before you sign up for Gap Insurance, or for any additional insurance, please review the two mentioned.

When you might need Gap Insurance

It is very advisable to consider getting Gap Insurance for your new vehicle or even a truck purchase. Just as long as you have made less than 20% on your down payment. If it is financed for more than 60 months.

How accident forgiveness works

Let’s say that you are a very good and disciplined driver, and in the last 6 years you have not committed an accident (not at fault or at fault), and you have an “Accident Forgiveness” policy. This means that the insurer will “forgive you if ever you had an accident after the first 6 years. This means that your policy and your premium will not be changed or impacted. This as well applies if you had a change of car for as long as you never had an at-fault accident.

Eligibility:

  1. You must have insurance and all other conditions satisfactory.
  2. The owner and driver of the car must be licensed and of course accident-free for the next 6 years

There is a lot to consider in purchasing or availing of this specific add-on in your car insurance. For you to get the best deal and value, you need to check factors before signing up for Gap Insurance. The first thing that you need to decide on is if the car is worth it or is this car really what I want. Remember that cars are a long-term commitment, you need to make sure that what you selected will fit your “now” situation, but is still functional in your future plan. We are pretty sure that you want that two-seater car now, but by next year, you and your wife/husband or life partner might have an additional seat. 

If you are financing a car, it is always advisable to get gap insurance, especially if you still owe a lot from your lessor. If your car is not properly insured and you become a victim of car theft, paying for it will be such a pain.

That’s why we are here to make sure you get the best option and give a bit of sound advice. 

 If you’re looking for a good independent agent that is familiar with the products and local area, please consider reviewing Advantage Insurance Solutions 720-221-8168. We can help you find coverage that suits your specific needs, improve protection, reduce cost, and recommend ways that you can adjust and correct your coverage to take advantage of discounts that insurers give for packaged policies.