GAP, or Guaranteed Asset Protection, insurance covers the difference between the insurance settlement from a totaled vehicle and what you still owe on your auto loan.
When you buy a new car, it automatically loses about 9% to 11% of its value the moment you drive it off the dealer’s lot. At that point, you suddenly owe more money than your car is worth.
So, what happens if you total your new car right after you buy it? With standard minimum
car insurance, you’re out of luck. That’s when gap insurance can save the day.
trusted car insurance broker that saves drivers hundreds of dollars a year on auto insurance, has compiled everything you need to know about gap insurance and whether or not you should add it to your car insurance policy.
What is car GAP insurance?
Gap insurance is designed to cover the difference between what you owe on your
totaled vehicle and any settlement you reach with an insurance company following an accident.
Short for Guaranteed Asset Protection, gap insurance is commonly required when
leasing or financing a car. The main benefit is that you aren’t left to pay a lot of money if you get into an accident while you owe more on your car than it’s worth.
How does gap insurance work?
If your car is totaled and you make a claim against your
comprehensive coverage or
collision insurance policy, your gap insurance will come into play. Sometimes, it will even pay your comprehensive or collision deductible.
Gap insurance works by covering the difference between what you owe on your loan and the depreciated value of your vehicle. Gap insurance covers your vehicle if it’s stolen or totaled by a covered peril in your insurance, for example:
Some states require car dealers to offer gap insurance as a part of buying a vehicle. That makes it important to know what your vehicle is actually worth and how much your insurance company will pay you if it’s totaled.
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Do I need gap insurance?
In most cases, gap insurance is beneficial if you are financing your vehicle. Often, when you take out a loan for a vehicle, the loan’s value exceeds the
actual cash value of your new car, especially as it depreciates. You’ll want to consider getting gap coverage when:
The value of your loan exceeds your car’s actual cash value—which will include a depreciation rate of 20% after the first year.
You have a longer loan term, typically exceeding 60 months or five years.
You couldn’t pay off your loan if your vehicle was totaled.
That said, once the balance of your loan is less than what you owe on your car, you usually have the option to remove it. You also may be eligible for a refund from your GAP insurance company or lender.
Can I get gap insurance after I buy a car?
Typically, gap insurance is only worth buying within the first few years after purchasing a new or used car. It’s during this time that there is more likely to be a difference between what you owe and what the vehicle is worth.
Most car insurance companies won’t offer gap insurance for a car that’s more than two to three years old. Some will only give the original owner of the vehicle gap insurance.
Even so, it’s always worth checking with your lender or current car insurance company. Major insurance providers like
Allstate usually offer gap coverage as an optional policy add-on for financed or leased vehicles.
How much does gap insurance coverage cost?
If you purchase gap insurance at the dealership or through a bank, you’ll probably pay a one-time fee between $500 and $700. It’s usually much cheaper to get gap insurance directly from your car insurance company. Expect to pay around $5-$10 per month, depending on your age, driving record, loan amount, and vehicle.
Is gap insurance worth it?
While usually not required, gap insurance may be worth the added expense. If you fall into certain categories it’s recommended that you get it due to its relatively low cost in comparison to the alternative of paying a lot of money out of pocket in the event of an accident.
Gap insurance is worth it if you fall into any of the following categories.
You bought your car within the past year
You put less than 20% down when financing your car
The loan/lease period on your car is less than five years
You rolled over what you owed on a previous vehicle into your new loan
The amount you owe on your car loan is more than the value of the car
You drive a lot (which causes a vehicle to depreciate faster
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How to add gap coverage to your car insurance policy
If you decide to add gap insurance to your current car insurance policy, the process is relatively simple. Considered a rider policy by many insurance companies, the coverage amends the terms of your basic policy to include the additional coverage.
In many cases, all you have to do is talk to an agent at your current insurance company and they will make sure that the coverage is implemented.
Once you have contacted your insurance agent and notified the company that you want to add gap coverage, the agent will need to know the total amount of your car loan and how much you still owe. From there, it’s a simple process of adding the coverage to your policy.
Purchasing gap insurance from the car dealership or lender is also straightforward. The agent or salesperson will tell you how much the coverage costs, and then you must decide whether you want to get it or not.
In some cases, you have no choice in the matter, though you can usually decide whether you want to get gap insurance from the dealership, lender, or an outside insurance company.
If you're looking for where to add gap insurance, a good place to start is with the
Jerry app. Jerry can help you find cheap car insurance and save you the trouble of having to search for coverage yourself.
Should you be in the market for refinancing your car loan and maintaining gap coverage,
Jerry can help! On average, customers can reduce their annual premium by more than $800. In addition to refinancing, Jerry's gap coverage could save you thousands of dollars after an accident.