Gap insurance is a type of insurance that covers the gap between what you owe on a vehicle and what it is worth in the event it gets totaled or stolen. Although gap insurance is not required by law, it is highly recommended for those who have taken out a car loan or lease. In this article, we will explore where to buy gap insurance and answer some frequently asked questions.
What is Gap Insurance?
Gap insurance, also known as guaranteed asset protection insurance, is a type of insurance that covers the difference between the actual cash value of your car and the amount you still owe on it. In the event of a total loss, such as a theft or accident, if the insurance company values your car less than what you owe on it, gap insurance will cover the difference.
For example, if you owe $20,000 on your car loan and it gets totaled in an accident, but the insurance company values it at $15,000, gap insurance will cover the $5,000 difference.
What Does Gap Insurance Cover?
Gap insurance covers the difference between the actual cash value of the car and the amount you owe on it. It typically covers theft, fire, flood, and accidents that result in a total loss. It does not cover mechanical repairs or regular maintenance.
Do I Need Gap Insurance?
If you have taken out a car loan or lease, it is highly recommended that you get gap insurance. Most car insurance policies only cover the actual cash value of the car, which can be significantly less than what you owe on it. Without gap insurance, you could end up owing money on a car that you no longer have.
Even if you have a sizable down payment or trade-in, it is still recommended to get gap insurance. The value of a car depreciates quickly, and it only takes a few months for the actual cash value to be less than what you owe on the car.
Where to Buy Gap Insurance?
GAP insurance is available from several sources, including:
Source |
Pros |
Cons |
Car Dealerships |
Convenient, can be included in your car loan |
Can be expensive, may not offer the best coverage |
Insurance Companies |
May offer discounts if you have other policies with them, customizable policies |
May require purchasing a separate policy from your car insurance |
Banks and Credit Unions |
May offer lower rates, can be included in your car loan |
May require membership or account with them, may not offer the best coverage |
Car Dealerships
Car dealerships are one of the most convenient sources of gap insurance. Many dealerships offer gap insurance as an add-on to your car loan or lease. This means that the cost of the gap insurance will be included in your monthly payments.
However, dealership gap insurance can be expensive. The cost of the insurance is usually rolled into your car loan or lease, which means you’ll be paying interest on the insurance as well. Additionally, dealership gap insurance may not offer the best coverage, so it is important to compare policies from other sources as well.
Insurance Companies
Many insurance companies offer gap insurance as a separate policy from your car insurance. This allows you to customize your coverage and may offer discounts if you have other policies with them.
However, purchasing gap insurance from an insurance company may require an additional policy, which can be confusing and time-consuming. Additionally, not all insurance companies offer gap insurance, so it is important to shop around and compare policies.
Banks and Credit Unions
Banks and credit unions also offer gap insurance. This can be a more affordable option, as they may offer lower rates than other sources. Additionally, the cost can be included in your car loan.
However, getting gap insurance from a bank or credit union may require membership or an account with them. Additionally, they may not offer the best coverage, so it is important to compare policies from other sources.
FAQs
What Does Gap Insurance Cost?
The cost of gap insurance varies depending on the source and your specific situation. On average, gap insurance can cost between $20 and $40 per year. However, dealership gap insurance can be more expensive, costing up to $700 or more. It is important to compare policies from different sources to find the best coverage at the best price.
When Should I Get Gap Insurance?
You should get gap insurance when you take out a car loan or lease. The value of a car depreciates quickly, and it only takes a few months for the actual cash value to be less than what you owe on the car. Without gap insurance, you could end up owing money on a car that you no longer have.
How Long Does Gap Insurance Last?
Gap insurance typically lasts the length of your car loan or lease. Once the loan or lease is paid off or terminated, the gap insurance will also end.
Can I Cancel Gap Insurance?
Yes, you can cancel gap insurance. If you have purchased gap insurance from a dealership, you can usually cancel it within a certain period of time. If you have purchased gap insurance from an insurance company or bank, you can usually cancel it at any time. However, it is important to check the terms and conditions of your policy to see if any fees or penalties may apply.
Is Gap Insurance Worth It?
Yes, gap insurance is worth it for those who have taken out a car loan or lease. Without gap insurance, you could end up owing money on a car that you no longer have. The cost of gap insurance is relatively low compared to the potential cost of a total loss. It is important to compare policies from different sources to find the best coverage at the best price.
In conclusion, gap insurance is an important type of insurance for those who have taken out a car loan or lease. It covers the difference between the actual cash value of the car and the amount you still owe on it. Gap insurance is available from several sources, including car dealerships, insurance companies, and banks and credit unions. It is important to compare policies from different sources to find the best coverage at the best price.
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