What is Gap Insurance?

April 21, 2021 , Katrina Lubiano

What is Gap Insurance?

Car insurance is expensive. I' also confusing.

There are many types of coverage, deductibles, discounts, and exclusions. And many car owners do' understand how these policies work, even though they are vital when taking out an auto loan.

One type of service that is offered is Gap Insurance. Gap Insurance stands for Guaranteed Asset Protection insurance. Le' take a look at why you should buy gap insurance for your vehicle, as well as factors to consider when comparing costs.

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Why You Need Gap Insurance Coverage

When purchasing your car, you may have chosen to finance or lease it without putting down any actual cash. Your auto loan amount may exceed the vehicl' value in such instances, especially for the first year of ownership.

That may not seem troubling - unless something happens to your car before yo'e paid off your loan. In many instances, the difference in what you owe for repair costs or the lease balance may be thousands of dollars less than what your insurance provider may pay out.

One of the advantages of leasing a car is that most lease terms include gap insurance at no cost, as opposed to financing a used car which you may have to pay additional money for.

How Does Gap Insurance Work?

When financing a new car, one thing you wo' want to forget is that yo'e responsible for paying off the loan regardless of what happens to the car. Most lenders will require comprehensive and/or collision coverage, which covers the cost of replacing a totaled vehicle.

If you buy a used car, gap insurance covers the difference between its current market price and depreciating value.

This means yo'e less likely to lose a significant sum if your car gets damaged in an accident, broken into, or stolen. You could end up paying thousands of dollars for out-of-pocket expenses.

The good news is that not only does gap insurance cover the difference in replacement value but also a portion of the depreciation rate should you choose to sell your car later.

Many lenders offer gap insurance to help owners cover the difference between what they owe on a vehicle and what they sell it for.

How to Get Additional Insurance

The most common way to purchase gap insurance is through the dealer financing process. After you sign a contract with a lender, you will receive a policy document that includes information about the terms of the agreement.

Always double-check with your lender to see if gap insurance is available because it is optional coverage. Some brands offer gap insurance as part of the lease or financing term, while others require separate payments.

Considering Costs

If you choose to purchase Gap Insurance during the dealership financing process, you should compare rates between the dealership offering and your auto insurance company’s offerings.
For example, you could find yourself paying extra money to cover the cost of more comprehensive coverage. A monthly fee may be required for the plan to stay active.

Make sure you fully understand the cost of gap insurance before signing any documents. Some dealerships tack on additional fees, such as a processing fee, to help offset the cost of financing the transaction.

Bear in mind that arranging gap insurance from a dealership is often negotiable. The cost from a dealership usually ranges from $300-$600 for the life of the lease (Between $8-15 a month). Oftentimes the cost depends on the MSRP of the vehicle you buy. However, some states, such as New York, only allow gap insurance to be sold at a fixed price.

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Questions to Ask

When opting for a gap insurance policy, there are some additional details you may need to know about. For example, some companies charge extra fees for certain types of vehicles.

Some brands, such as Toyota or Mazda, do' have gap cover for leases. As always, i' best to do your homework with some basic questions:

  • How long do you need gap coverage?
  • What kinds of situations qualify for it?
  • Are there any exclusions for my brand of vehicle?

However, even if gap insurance is not included in a lease, it usually only costs an additional $8-15 a month, which can still make a lease from one of those brands a very competitive deal. Toyota, for example, offers the first two maintenance visits free of charge instead.

Gap insurance is generally best used while the value of the loan is greater than the value of the vehicle. This may also be the case when owners take out a more extended loan payoff period.

If your vehicle needs repairs, for instance, due to a breakdown, yo'l likely need gap coverage. This also protects you against theft or vandalism in the time between when your vehicle is repaired and when you return to pick up your car.

If your car is involved in a collision, yo'l also want to check for gaps in your insurance policy. Yo'e covered by your auto insurer for any repairs needed to fix your car.

If someone els' insurance covers your losses, yo'l need to ensure that you have enough gap insurance to cover any shortfall.

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Purchasing Gap Insurance

Gap insurance is an optional addition to car leasing or financing. If you are paying monthly payments on a lease or loan, it makes sense to add gap insurance to your plan.

If you decide that gap insurance makes sense in your instance, ensure that you choose the best fit for you. Some companies offer better deals than others.

Finding a quote

You may want to consider purchasing gap insurance through your auto insurer. They often offer better rates than independent agents. However, shopping around is always a good idea.

Here are some reasons why you should compare quotes online:

Yo'e getting a better deal

When you compare prices online, you can see exactly how much you could save. You can even find out about additional discounts you may qualify for.

In addition, you can compare different policies side-by-side. You can quickly tell whether one policy offers better coverage than another.

Yo'e making smarter decisions.

In most cases, you ca' just pick up the phone and call your insurance agent. You have to wait for an appointment. And sometimes, you have to schedule multiple appointments to talk about all of your options.

By comparison, you can compare quotes online in minutes.

Conclusion

If you have a car, you could likely be involved in an accident at some point. And when accidents happen, they often result in expensive repairs, which means you could end up paying thousands of dollars out of pocket.

Luckily, gap insurance provides a solution to this issue. So even if your car gets totaled, you wo' have to worry about paying the balance of your vehicl' value.

Contact us today to discuss your auto leasing and financing needs.

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