What Is Gap Insurance Coverage and Is It Worth It? | American Family Insurance
Heading to the franchise to pick up your newfangled fixed of wheels makes for one amazing day ! Whether you decided to finance your new car, lease it or purchase it instantaneously, the decision is wholly up to you. Either way, you ’ ve worked hard to secure the finances needed to make that car purchase a reality. To protect your investment, and since you ’ re a responsible driver, you probably have collision coverage to cover the price to replace your car if you get into an accident and your car is totaled .
Table of Contents:
Do I Need Gap Insurance ?
What Does Gap Insurance not Cover ?
How Does Gap Insurance Work ?
Do I Need Gap Insurance on a Lease ?
Does Gap Insurance Cover Insurance Cover Theft ?
Is Gap Insurance Required ?
How to Get Gap Insurance
Do I Need Gap Insurance?
first and foremost, do you lease or finance your car ? That ’ s normally a estimable determine factor in whether you should have gap coverage or not but leasing or financing your car doesn ’ thymine constantly mean you need this coverage .
here are some ways to determine if you need gap policy :
- The value of your car depreciates quickly. If you end up getting into an accident on the way home from the dealership, you could be upside down (which is when you owe more than what the car is worth) within minutes of your new purchase! Not good. Insert gap insurance — this will help cover that cost you still owe after your insurance pays for the actual cash value of your vehicle if it’s deemed totaled.
- Since this coverage only protects you when you owe more than your car is worth, if you’re at a point in your payment plan where you owe less than what your car is worth, then gap insurance doesn’t do much for you. Just make sure your loan balance consistently stays below the actual cash value of your car if you decide to forgo gap coverage.
- Were you only able to make a small down payment when you got your vehicle? Now is an important time to have gap coverage, since you probably have a sizable outstanding loan.
Assuming the value of your car is going to be less than what you owe on your loan, col policy can protect you from a solid payment — possibly thousands of dollars. On that note, it ’ south smart to have gap policy if you have a fresh or expensive vehicle, since your investment is worth more .
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What Does Gap Insurance Not Cover?
Though having opening policy coverage can be a fiscal life rescuer in the event you were to total your car and still have your rent or loan to pay, don ’ triiodothyronine confuse its aim — here ’ s what gap insurance does not cover :
- If you’re having trouble making your car payments due to a financial hardship, disability, loss of job, etc.
- Any repairs to your vehicle
- The carry-over balance on a loan you may have rolled over into your new car loan
- Paying for a rental car while your vehicle is in the shop
- Extended warranties added to your car loan
- A down payment for a new car
- Reduced value of your car after an accident
Simply put, lease and loan gap policy coverage protects you from being put in a position where you have to pay the difference out of your own pocket ( for a vehicle you no longer can drive ! ), while besides having to pay for another fomite, excessively .
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How Does Gap Insurance Work?
here ’ s the deal — when you drive your vehicle off the franchise lot, according to Edmunds.com, its value depreciates around 11 percentage, meaning your cable car is already worth less than what you equitable paid for it alone minutes ago .
here ’ s an example of how gap coverage works :
- You buy a car for $30,500, make a $500 down payment and take out a $30,000 loan with monthly payments of $400.
- Now, imagine four months later you get into an accident and your car is totaled. Your insurance company decides the actual cash value of your vehicle, or the fair market value, is $26,000. They’ll pay this much (minus the deductible) through your collision coverage on your insurance policy.
- However, because of the structure of your loan payment, you still have $29,500 to pay on the loan, leaving a gap of $3,500. Without gap insurance, you’d be responsible to pay that entire difference. However, with gap insurance, you’re only responsible for the $500 deductible.
- Having gap insurance eliminates this deficit, since your insurance company will also pay that gap of $3,000.
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Do I Need Gap Insurance on a Lease?
Gap policy works similarly whether you lease or finance your car. As stated before, the value of the cable car depreciates the moment you take it off the franchise distribute. so, the market value of your chartered car is going to be much lower than what is still owed on your lease shrink .
If you total the car, you ’ rhenium creditworthy for the fair market rate of the vehicle and what you distillery owe on the rent, a.k.a. — the gap. so, your policy company will pay the actual cash value of your rent cable car, but you ’ ll pay for that opening, which could be in the thousands !
Some things to keep in mind about opening indemnity for your rent cable car :
- Gap insurance is extra important for those leasing a car, and that’s why a lot of leasing contracts include gap insurance by default. Before you purchase gap insurance, check to see if it’s already included by either the leasing company, dealership, or the car leasing insurance company.
- If you lease or finance your car, your dealership will typically require that you have comprehensive and collision coverage, and once you purchase these you can also add the gap coverage.
- Your deductible is usually not covered by gap insurance, but some plans do cover the deductible, so be sure to check with your provider.
- You may have to continue paying your lease payments until your insurance claim is completely settled.
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Does Gap Insurance Cover Theft?
To get the benefits of gap insurance if your vehicle is stolen, your car indemnity caller will have to declare the fomite a sum loss. This happens in two ways : if your vehicle is recovered with adequate damage done to it by the people who stole it, or if your vehicle is never recovered — normally, insurance companies will have a waiting period to allow time for your car to show up .
If your policy company does declare your car a sum loss, they will pay out the fair commercialize prize of the fomite, which sometimes is less than what you calm owe on the vehicle, even if it were stolen. so, if you total your car, and have a “ gap ” to pay, you may have that same gap to pay for if your car was stolen .
Keep in take care, every insurance company is different, and though most cover larceny with opening policy, you ’ ll want to check to see how a steal vehicle is handled with your particular provider .
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Is Gap Insurance Required?
Is col policy compulsory ? In most cases, no. typically, the only fourth dimension gap indemnity is required is if you lease or finance your cable car, where it will be included in the contract and you ’ ll normally pay for it within the rent agreement for a fee. other times, you credibly won ’ thymine be required to have the coverage. Be indisputable to check with your franchise and ask if it ’ randomness included .
But precisely because you might not be required to have gap coverage doesn ’ deoxythymidine monophosphate hateful you should forgo it completely ! Gap policy only adds a few more dollars to your monthly or semiannual policy, but it could save a big collocate of money in the long run .
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How to Get Gap Insurance
You can purchase col policy correctly at the franchise, but it can be less expensive if you purchase it from an insurance company. Check with your agentive role to see how a lot it would cost to add the coverage to your policy.
Remember, if you lease your fomite, the coverage may already be included in your lease contract, so ask your dealer if you ’ re protected and how much you ’ re paying for the coverage .
now that you know some significant reasons you might need col coverage, connect with an american Family Insurance agent and visit our page on lease/loan gap policy — your agent can help you add this ache coverage so you ’ ll be protected from the unexpected .
This article is for informational purposes only and includes information wide available through different sources. This article does not afford or guarantee coverage .
Category : car insurance questions