Gap Insurance for Car: Everything You Need to Know

Auto insurance is a requirement for every car owner, but sometimes standard coverage isn’t enough. If you’re financing or leasing a vehicle, or if you bought a new car that quickly depreciated, you may need gap insurance. This type of coverage can save you from financial hardship if your car is ever totaled or stolen. In this article, we’ll explain what gap insurance is, how it works, and whether you need it.

What is Gap Insurance?

Gap insurance is a type of auto insurance that covers the difference between the actual cash value of a car and the remaining amount owed on a lease or loan. It’s short for “Guaranteed Asset Protection” and it’s designed to protect drivers from owing money on a car that’s no longer usable. For example, if you owe $20,000 on a car loan and your car is totaled, but the insurance company only values your car at $15,000, you’d be responsible for the $5,000 difference. Gap insurance would cover that gap.

Gap insurance isn’t required by law, but it may be required by your lender or leasing company. Even if it’s not required, it’s worth considering if you owe more on your car than it’s worth or if you can’t afford to pay for a replacement car out of pocket.

How Does Gap Insurance Work?

Gap insurance works by covering the gap between your car’s actual cash value and the amount you still owe on your lease or loan. It’s usually purchased as an add-on to your existing car insurance policy, although some dealerships offer it as part of a lease or financing agreement.

When you file a claim with your gap insurance provider, they’ll pay the difference between the actual cash value of your car and the amount you still owe on your lease or loan. This means that you won’t be left with a large bill if your car is totaled or stolen.

Do You Need Gap Insurance?

Whether or not you need gap insurance depends on several factors, including how much you owe on your car, how much your car is worth, and how much you can afford to pay out of pocket if your car is totaled or stolen.

If you have a car loan or lease that’s worth more than your car, gap insurance is a good idea. It’s also a good idea if you don’t have enough savings to pay for a new car if your current one is totaled or stolen.

On the other hand, if you own your car outright or if you have enough savings to cover the cost of a new car, you may not need gap insurance.

How Much Does Gap Insurance Cost?

The cost of gap insurance varies depending on several factors, including the make and model of your car, how much you owe on your lease or loan, and your driving record. In general, gap insurance costs between 5% and 15% of your collision and comprehensive coverage.

Some dealerships may offer gap insurance as part of a financing or leasing agreement, but it’s usually less expensive to purchase it through your own insurance company.

FAQ

What’s the Difference Between Gap Insurance and Regular Car Insurance?

Gap insurance and regular car insurance serve different purposes. Regular car insurance covers damage to your car or damage you cause to others. Gap insurance covers the difference between the amount you owe on a car loan or lease and the actual cash value of your car if it’s totaled or stolen.

Do You Need Gap Insurance if You Have Comprehensive Insurance?

No, comprehensive insurance covers damage to your car from theft or natural disasters. However, it doesn’t cover the difference between your car’s actual cash value and the amount you still owe on a car loan or lease.

How Long Should You Have Gap Insurance?

You should have gap insurance until the amount you owe on your car loan or lease is less than your car’s actual cash value. Once that happens, you no longer need gap insurance.

Can You Buy Gap Insurance After You’ve Already Purchased a Car?

Yes, you can purchase gap insurance after you’ve already purchased a car. However, it’s usually less expensive to purchase it at the same time as your car insurance.

Does Gap Insurance Cover Your Deductible?

No, gap insurance doesn’t cover your deductible. It only covers the difference between your car’s actual cash value and the amount you still owe on your car loan or lease.

Conclusion

Gap insurance can provide peace of mind for drivers who owe more on their car than it’s worth. It’s a relatively inexpensive way to protect yourself from financial hardship if your car is ever totaled or stolen. If you’re not sure whether you need gap insurance, consider how much you owe on your car, how much it’s worth, and how much you can afford to pay out of pocket for a new car. If you decide to purchase gap insurance, shop around for the best rates and make sure to read the fine print of your policy.