It ‘s besides known as guarantee asset protection, and it helps you recover the difference between what you owe and the amount you receive from your insurance company after a total loss .
Gap indemnity is only applicable if you finance your vehicle. Understanding how it works can help you calculate your electric potential liability and determine whether it ‘s necessary. We constantly recommend that drivers compare quotes from multiple insurers to get the best rate .
What is gap insurance?
Gap policy protects drivers who have financed or leased their cars and owe more money on the cable car than it ‘s worth. This site is sometimes called being “ top down ” or “ subaqueous. ”
Being top down normally happens if you finance a newly vehicle because new cars may lose respect faster than you pay off the loan .
You are specially likely to be top toss off if you make a smaller down payment or choose for a long loan period, as that means your loanword remainder will decrease more lento. Being top down on your car lend is n’t necessarily a bad thing, but it puts you in a military position of excess fiscal hazard .
If your new car is totaled or stolen, your comprehensive or collision coverages will cover up to the cable car ‘s actual cash value. But you would silent be responsible for the deviation between how much you owe on the loanword and the car ‘s value. Gap policy covers that difference .
>> LEARN MORE : Auto Insurance for Leased Cars
Pros and cons of gap insurance
Gap insurance can offer a meaning degree of protective covering in certain situations, but it is an extra cost to consider. If you are not required to purchase gap insurance but have the option, here are some elements to consider :
Pros
- Gap insurance means you can walk away from an accident with less financial burden.
- You can potentially purchase a more expensive vehicle with less worry.
- The annual cost is relatively low, quite often $100 or less.
Cons
- At a certain point, the difference between what you owe and the car’s value will drop to the point that it might not be worth having.
- It is an extra expense on top of monthly payments and regular upkeep.
- If you pay a low price to begin with, it might not be necessary.
Where can you buy gap insurance?
You can buy gap indemnity from most big-name car policy companies, including State Farm, Progressive, Allstate, Esurance, Farmers, Travelers, Nationwide, 21st Century and USAA. Most companies require that drivers have comprehensive examination and collision coverage in order to get col insurance, and some companies may have extra special conditions drivers must meet to qualify for it .
If you are matter to in purchasing alone gap insurance, some car dealerships offer standalone gap indemnity coverage. however, most of the time, insurers offer better rates for gap insurance compared to dealers. While car dealers might say you are required to have gap insurance or that you must buy it from them, it is up to you to decide if or where you buy gap policy .
What is (and isn’t) covered by gap insurance?
Gap policy can be a beneficial part of your car indemnity coverage, but it alone protects you in certain situations. here ‘s when col coverage will ( and will not ) protect you :
Does gap insurance cover theft?
Yes. If you ‘re a victim of cable car larceny, gap coverage will pay out the difference between your comprehensive examination coverage and your car ‘s value .
Does gap insurance cover a car totaled in an accident?
Yes. In situations where your car is damaged beyond animate, col coverage will step in .
Does gap insurance cover me if my car is not totaled?
No. Gap indemnity alone comes into play if your car ca n’t be fixed or it is prohibitively expensive to do so .
Does gap insurance cover my deductible?
No. even if you have gap policy on your car, you ‘ll inactive be responsible for paying the comprehensive examination or collision deductible .
Does gap insurance cover bodily injury or death?
No. Gap insurance is only relevant to damage to your cable car, and it does n’t cover anything relate to aesculapian concern, funeral costs or lost wages .
Who should get gap insurance?
not every driver is eligible for gap insurance, and not every driver who is eligible should get it .
Gap indemnity is only available if you bought your car with a loanword or if you lease your vehicle. If you own your vehicle outright, you do n’t need to consider getting gap coverage .
even if you financed your car, you lone need gap coverage if the measure you owe is more than the car ‘s value. The best way to determine whether you need gap coverage is to find the cash value of your car and subtract it from how much you owe .
You wo n’t be able to find the claim amount your policy caller uses for your fomite ‘s actual cash value, but you can approximate your car ‘s measure by visiting a local appraiser or looking it up in Kelley Blue Book .
For example, we found that the Kelley Blue Book value of a 2017 Mini Cooper is about $ 13,000. If you owe $ 15,000 on that car, you ‘re submerged and would benefit from col coverage .
Calculating the col between your car ‘s value and what you owe is the best way to know if you need it. You may besides be more probably to need break coverage if any of the adopt situations apply to you :
- Your lease or loan requires it: Gap insurance may be required by your leasing or financing company to protect you in the event of a total loss. However, just because it’s required doesn’t mean it’s included in your loan or lease, and you might be able to find cheaper coverage elsewhere.
- You made a low down payment or opted for a long lease: A low down payment or longer lease means that your car is likely to lose value faster than you are paying it off, especially in the first few years of ownership.
- You own a luxury or high-value car: Luxury cars depreciate faster than ordinary vehicles, so if you bought a Cadillac or Lexus, you’re more likely to have your loan amount eclipse the car’s value.
- You drive your car long distances: While every car loses value the second you drive it off the lot, driving a significant amount in a new vehicle decreases the value of the car a lot quicker. The more miles you drive with the car, the less it’s worth.
You probably do n’t need to carry gap insurance constantly. Once you pay down the loan to the point where it ‘s worth more than you owe, you should remove gap coverage, deoxyadenosine monophosphate long as the terms of your lease allow it. In the consequence your car experiences a entire loss, having gap insurance would not result in any extra payment .
>> LEARN MORE : How a lot car indemnity Do I Need ?
Is gap insurance worth it?
Gap policy is worth purchasing if the cost is n’t significant and you could find yourself with a large beak to pay off a car you no retentive have. It ‘s significant to do the mathematics and determine how “ top down ” you are on your current car loanword. If your loanword payment is close to the actual cash value of your vehicle, you may see little to no payment in the consequence of an accident .
however, if your cable car is worth well less than the money still owed on it, col policy is well worth the normally gloomy monetary value .
many policyholders do n’t want to purchase extra coverage if it ‘s not needed. Remember, your “ col ” is shrinking as your car depreciates and you continue to make monthly lend payments. Use a reference like Kelley Blue Book to figure out how much your car is worth .
How to tell if you have gap insurance
There are two places to check whether you already have gap insurance : your existing car indemnity policy and the terms of your rent or loan. Gap coverage is sometimes sold as an accessory from the principal when financing a car, so check to see if you ‘re already paying for it before you add coverage .
even if you have coverage, it ‘s worth it to see if you can get cheaper break policy elsewhere, as car dealers frequently charge more for it .
Which companies offer gap insurance, and how much does it cost?
Most major car indemnity companies offer opening insurance in some form, though many have limitations on which vehicles they will insure. Geico is the entirely major insurance company that does n’t offer gap coverage at all .
Gap insurance through an policy company is typically not very expensive, so we recommend drivers who would benefit from the coverage think purchasing it .
|
Insurer Read more: The Best Car Insurance Companies for 2022 |
Does it offer gap insurance? |
Limitations |
|---|---|---|
| State Farm | Yes | Only vehicles financed through State Farm Bank |
| Progressive | Yes | Up to 25% of actual cash value (lease/loan coverage) |
| Allstate | Yes | New vehicles only |
| Esurance | Yes | Up to 25% of actual cash value (lease/loan coverage) |
| Farmers | Yes | New vehicles only |
| Travelers | Yes | New vehicles only |
| Nationwide | Yes | — |
| 21st Century | Yes | Only available in AZ, CO, ID, IA, KY, MT, NM, OR, NE, TN, UT, WA and WI |
| USAA | Yes | Only vehicles financed with a USAA auto loan |
| Geico | No | — |
Find Cheap Auto Insurance Quotes in Your Area
presently insured ? Comparing rates is often the best way to find savings on car insurance coverage .
>> LEARN MORE : compare Car Insurance Rates
Cost of gap coverage
We collected quotes from Progressive and Esurance to understand how a lot you can expect to pay for gap coverage. In all cases, we found col indemnity to be low-cost, averaging only a few dollars per calendar month. In addition, neither indemnity company asked for the remaining balance of our loan, so the price is the lapp careless of how big your col is .
|
Progressive |
Esurance |
Kelley Blue Book value |
|
|---|---|---|---|
| 2017 Camaro convertible | $5.83/month | $7.67/month | $16,500 |
| 2017 Mini Cooper | $4.50/month | $7.50/month | $13,000 |
>> LEARN MORE : Who Offers the Cheapest Car Insurance ?
How to calculate gap insurance
Calculating your break policy only requires taking the current value of your vehicle from the remaining balance of your loanword. You should be able to consult your lender as to how much you still owe, and Kelley Blue Book is a good joyride for finding your car ‘s value .
In this example, you can see how opening insurance can potentially save you thousands of dollars if your car is totaled or stolen :
|
Actual cash value of your vehicle [A] |
$15,000 |
|---|---|
| Amount you owe on your auto loan [B] | $20,000 |
| Gap insurance covers [B – A] | $5,000 |
It ‘s important to note the amount opening policy covers goes down over time. At a certain point, it might be worth the risk to discontinue coverage, assuming your lender allows it .
Getting a refund for gap insurance
You do n’t need break indemnity once you ‘re no longer top down. After you have paid off enough of your vehicle ‘s price that the sum you owe is less than the car ‘s measure, you can cancel gap coverage .
If you prepaid for coverage, then you ‘ll be refunded any agio you have n’t used. For case, if you have paid for six months of gap insurance, but your cable car is paid off three months late, you ‘ll be able to get a refund for the other three months .
How long does it take for gap insurance to pay?
The come of time between an accident and gap insurance payout can in theory be a little as five days, depending on where you live, but it is far more likely to take at least several weeks and much more than a calendar month. Different states have different laws, and the process has multiple elements .
generally, an indemnity company takes up to 30 days to declare a fomite a total personnel casualty, although it can take longer. After it makes a determination, the insurance company will begin to process the gap requital .
You should speak to both your insurance company and lender or lessor through the procedure to get a sense of how long it might take. Crucially, you need to find out how the timing works between your next requital and when gap indemnity requital starts covering the personnel casualty.
When does gap insurance not pay?
Gap policy wo n’t pay in a wide variety of situations, namely anything unretentive of a sum loss. If you are in an accident in which the car is repairable, gap policy will not pay out. Some of the situations for which you will not get a opening insurance payout include :
- Repairs for normal wear and tear
- If the engine fails
- After an accident that doesn’t total the vehicle
- Money rolled over from a previously leased car
- Injuries and medical costs
- A rental car after an accident
- A replacement vehicle
Methodology
To illustrate the costs of opening insurance, we collected quotes from two insurers that offer col coverage : progressive and Esurance. We collected quotes for a 2017 Chevrolet Camaro convertible and a 2017 Mini Cooper .
All quotes were for a driver with a clean criminal record and entire coverage .