Do I need GAP insurance? It is the question that many drivers ask themselves when they are financing their new car and insurance companies offer them this service as part of their portfolio.
Here we clarify what GAP car insurance is, when you need it, what its advantages are, how to buy it and in what cases it is worth it.
What is GAP insurance?
To know if GAP insurance is necessary, you must first be very clear about what it means.
“GAP” is an acronym for “gauge asset protection” (GAP).
GAP insurance is the difference between the actual cash value of your car and the balance you owe on the loan or financing of your car. That is, the amount that your insurance or policy would pay if a car that you rented or have not yet finished paying is stolen, damaged, or lost.
However, you should keep the following in mind:
- You can only opt for this coverage as a supplement when you already have a collision policy and an all-risk policy.
- GAP insurance will never replace comprehensive vehicle insurance.
- Not all companies will include your car deductible in their plan.
- Some insurers require that your vehicle be brand new for you to purchase GAP insurance.
Do I need GAP insurance?
First of all, you should know that GAP insurance is not mandatory unless it is expressly indicated in the financing contract of your car. In no way is having GAP insurance a requirement for you to qualify for a new car loan or purchase.
You will need GAP insurance if:
- You rented or leased a car that you do not own.
- You bought an expensive car that is more likely to depreciate quickly.
- Your credit is long-term (60 months or more), so there is a greater probability of any eventuality in the course of the loan.
- You have a loan with a high-interest rate.
- Your vehicle is in an area at risk of theft or damage.
- You still owe a very high balance on financing debt.
What if I don’t have GAP insurance?
Having a comprehensive coverage or all-risk policy does not mean that your car is completely protected
Is GAP insurance a waste of money? Some people think that buying GAP insurance is a luxury. However, few know that their insurance policy is not obligated to pay the debt of their car in case it is destroyed.
When you buy an auto insurance policy, you are insuring your car for its actual cash value (ACV) and not for the amount you borrowed. Your insurance provider will only pay for the ACV and you will have to pay the balance of that loan or lease, which can be up to thousands of dollars due to interest and market depreciation of your car.
The ACV of a car is the value of the car at the time of the accident, not its original price. Typically, the amount owed to the lender exceeds the actual value of the vehicle when these types of incidents occur.
Remember that your car loses approximately 10 to 20% of its value as soon as you take your car out of the dealership
Advantages of having GAP insurance
If you still owe your lender or lessee, in the event your car is stolen or declared a total loss, your GAP insurance will cover the difference you owe up to that point, relieving you of that financial burden.
- GAP coverage will cover you regardless of who was at fault in the accident.
- The policy won’t expire until you cancel it, but you can stop paying it when you owe less than your car is worth.
- You will never be left without a car or continue to pay for it, as has happened to many people affected by a catastrophe.
- You will not have to pay money out of your pocket at the time of an accident and you will avoid requesting an additional loan with more interest.
- Some insurance providers offer you terms that fit your car loan or lease.
- Certain companies may refund your insurance deductible up to $500.
Who should I buy GAP insurance from?
Most of the time, you can purchase your GAP insurance from your insurance provider, which may give you some discount or savings on your monthly premium. Before purchasing your GAP insurance, remember to request several quotes from different companies.
If you are not satisfied with the value of your current policy, you can always cancel it and opt for a better price. Freeway helps you compare different companies so you can find an affordable rate that fits your budget.
How much does GAP insurance cost per month?
You can expect to pay anywhere from $3 to $19 per month, on average. This will depend on whether you purchased your insurance from the company that financed your car, from your current provider, or from a new company that sells independent third-party policies. Rates may even vary based on your driving history and credit score.
It is common for dealerships to have higher rates than direct companies because they include your GAP insurance rates in your loan with interest.
So, to get cheap GAP auto insurance, it is best to seek professional advice.
Can I make monthly GAP insurance payments?
Most GAP insurance providers will allow you to make monthly payments on your insurance, either when you purchase it directly from your dealership or through an outside company or your current collision and comprehensive insurance company.
