How Do I Know If I Have Gap Insurance?
To find out if you have gap insurance, check with your current car insurance company and review the terms of your loan or lease.
Gap insurance isn’t right for everyone, and understanding what it is and how it works can help you determine whether it’s something you should purchase.
If gap insurance is something you want, be sure to shop around for the best rate for your coverage. The car insurance comparison app Jerry is a good place to start.
As a licensed broker, Jerry does all the hard work of finding the cheapest quotes from the top insurance companies and finalizing the purchase of your new car insurance. Jerry will even cancel your old policy for you.
What is gap insurance?
Gap insurance covers the difference between what you owe on your vehicle and its actual cash value if the car is declared a total loss.
Gap insurance is especially important during the window that you owe more money on the vehicle than it’s worth (also known as being upside down on your car loan).
This sounds bad, but don’t worry! Vehicles depreciate in value quickly and being upside-down can be common in certain circumstances. For example, if you:
- Don’t place a large down payment (typically any amount less than 20% of the vehicle’s total cost)
- Purchase a luxury vehicle
- Drive a lot (causing the vehicle to depreciate faster)
- Lease or loan the vehicle for less than five years
If you were to get into an accident during this time period, such as that first drive off the lot (it’s happened before), then you’re out of luck. Collision insurance will only cover so much of a totaled vehicle—but if you owe more on the loan than what the vehicle is worth, gap insurance covers the difference.
How to check if you have gap insurance
Check with your auto lender
If you don’t pay a large down payment, some lenders will require gap insurance at the time of purchase. This helps assure the lender that they won’t lose money on your purchase should a bad situation happen. If you want to check if you have gap insurance, checking with your auto lender is a great place to start.
Ask your insurance company
If your auto loan documents don’t show gap insurance, you should review your insurance plan. It’s possible the lender didn’t require gap insurance at the time of purchase, but your insurance agent may have advised this as part of your plan.
Keep in mind that if your car is older than three years, most insurance companies won’t provide gap insurance (though some exceptions may apply to luxury vehicles.
Review your financial documents
This one may be a stretch. If your lender and insurance documents don’t show gap insurance, it’s likely you don’t have it. But it’s always a good idea to check financial documents, such as bank or credit card statements, to be sure that you haven’t been paying for it through another source.
Key Takeaway Checking with your lender or insurance company is the best way to verify if you have gap insurance.
When should I cancel gap insurance?
You should cancel your gap insurance if the amount you owe on your car is less than the value of the car.
Most car owners who still owe on their vehicles hit this point about three years after purchase. At this time, the car has either depreciated in value enough or they have paid off enough of the loan that gap insurance isn’t needed.
You can cancel gap insurance if:
- You pay off the balance quickly
- You have almost paid off your loan
- Your vehicle has a low depreciation rate (i.e., older vehicles)
- You have enough in liquid assets to replace the vehicle if it’s totaled
Getting a refund for gap insurance
If you believe you no longer need gap insurance due to one of the above reasons, you may qualify for a gap insurance refund. You could get a refund on any gap insurance you paid for in full if you are switching to different gap insurance or selling, trading in, or paying off the covered vehicle.
Key Takeaway Cancel your gap insurance if you’re close to paying off your loan or if you’re trading in or selling your vehicle.
Can you get gap insurance after you buy a vehicle?
Yes, depending on the model of the vehicle and whether you start the gap insurance coverage within the first three years of the vehicle’s loan or lease.
How long does gap insurance last?
Gap insurance lasts as long as you decide to keep it on your insurance policy. Since gap insurance is only useful during the period you owe more money on your vehicle than it is worth, most people only keep gap insurance for two to three years.
How do you purchase gap insurance?
If you want to buy gap insurance, speak to your insurance company. For the best rate, it’s definitely worth shopping around—and there’s no easier way to do that than with Jerry.
Just download the Jerry app, answer a few easy questions, and in less than 45 seconds Jerry collects all your information from your existing insurer. Choose from competitive quotes from up to 45 top insurance companies and let Jerry take care of securing your new policy and canceling your old one. No long forms, no calling around, no hard work—just savings.
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