Gap coverage covers the difference if your new car is totaled or stolen and you still owe more on it than its current deemed value. There is simply no excuse not to have gap insurance because it is inexpensive and simple to get.
In This Article...
Does gap insurance actually pay off?
Gap insurance might undoubtedly be worthwhile if there is ever a period when you owe more on your car than it is currently worth. Get gap insurance if you put down less than 20% on a vehicle, at the very least for the first few years you own it.
What benefit does having gap insurance provide?
The difference between your auto loan and the vehicle’s depreciated value is covered by gap insurance. In other words, gap insurance assists you in paying off your auto loan or lease if you are unable to continue driving your vehicle as a result of theft or totaling it.
A gap claim cannot be made if you are simply unable to make your loan or lease payments due to the fact that gap insurance only pays when your car is damaged or stolen. Additionally, the majority of gap insurance policies won’t cover your expenses. If applicable, the collision or comprehensive deductible.
Does gap insurance make sense for older vehicles?
GAP insurance is often advised when purchasing a new vehicle. That’s because once you drive a brand-new automobile off the car lot, it stops being brand-new.
A new car loses 15 to 25% of its value in the first year, much of it as soon as you drive it off the lot. If you don’t put down more than 25%, your loan balance may surpass the value of the car almost immediately.
Age of the Vehicle
Every year of a car’s lifespan, the rate of depreciation tends to be smaller. As a result, it might not be worthwhile to acquire GAP insurance if you borrow money to purchase a six-year-old car because your loan balance will typically keep up with the rate of depreciation.
In the event of a total loss accident, the cost of GAP insurance for older cars is probably greater than the difference between the value of the car and the loan balance.
GAP insurance could be a smart purchase, nevertheless, for vehicles that are three years old or newer.
Length of Loan Term
The term of your auto loan is another deciding element. GAP insurance could be a smart purchase if you buy a car that is less than three years old with a loan term longer than 60 months.
This is because a longer-term loan entails lower monthly payments, which frequently lead your car’s value to decline more quickly than your ability to pay off the loan.
Smaller Down Payment
Your loan’s size is lowered in relation to the value of your car if you make a down payment. You won’t need GAP insurance as much if you put a large deposit down on a used automobile.
GAP insurance, though, can still be helpful if your down payment is less than 20% and the car isn’t extremely old. The more practical GAP insurance might be for you, the lower the down payment.
How much gap insurance do you pay for?
A GAP insurance policy, which typically lasts three years, is made to address this issue by covering the discrepancy between the sum you receive from your auto insurer and the cost of replacing your vehicle.
How much will gap insurance cover in total?
- In addition to your deductible, gap insurance covers the difference between what is owing and what the physical damage insurance provider pays: $2,000
What is loan or lease coverage and how it is different from gap coverage?
Although the terms loan/lease coverage and gap insurance are sometimes used interchangeably, they typically don’t refer to the same coverage. The actual cash value (ACV) paid out by your auto insurance company will be less the amount you still owe on a vehicle, and the gap insurance will cover the difference.
Usually, lease/loan coverage has a cap on how much it will pay out, such as 25% more than the estimated ACV of your car. Your deductible is deducted from both.
Let’s say you total your $18,500 automobile with a $500 collision deductible, but you still owe $25,000 on it. There is a $6,500 discrepancy between what you owe and what the item is worth. There is a $6,000 discrepancy after your $500 deductible has been paid.
This total sum would be paid out if you had gap insurance. Only $4,625 would be paid under lease/loan coverage, which covers only up to 25% of the vehicle’s worth ($18,500 x 25% = $4,625). Therefore, if you chose the lease/loan option, you would still owing $1,375.
Run the figures to ensure that lease/loan coverage will work for you. For instance, if the vehicle was worth $20,000 in the aforementioned scenario, 25% of that amount would be $5,000, which is equal to the difference ($25,000 due – $20,000 paid by insurance and your deductible = $5,000), meaning the entire amount would have been covered.
Suppose you purchase a car for $40,000 and have loan/lease coverage that pays 25% more than the automobile’s real cash worth. Eventually, the car loses value and is worth $25,000. After it is deemed a total loss, the maximum you might be compensated is $31,250 less the deductible.
How long does it take to receive a refund for gap insurance?
How long does it take to receive a refund from gap insurance? Refunds from gap insurance often take 4-6 weeks. However, you can speed up the procedure by keeping in touch with your gap insurance provider and submitting signed documents right away.
What is the disadvantage of gap coverage in terms of buying a car?
According to Bankrate, gap insurance is inexpensive; typically, it accounts for 5 to 6 percent of the cost of your comprehensive and collision insurance. Esurance, however, advises against purchasing gap insurance from automobile dealerships because doing so might increase the cost of the vehicle by up to $1,000 and necessitate a sizable down payment. Check to see if your auto insurance provider offers gap insurance instead. If so, you might be eligible for a discount for combining insurance.
How is the Gap refund determined?
To figure out how much money you owe, you can perform a straightforward computation. Divide the entire amount of your gap insurance by the length of time you were covered. After that, double the monthly premium by the remaining number of months on your insurance.
Here’s an illustration:
- Imagine for a moment that you can pay off your car loan in full in just 20 months.
- Assume you purchased $1,000 for an insurance with a 36-month duration.
- The average monthly price for your gap insurance would be $27.
- For the 16 months during which you no longer require gap insurance, you could receive a reimbursement from your gap insurance provider, which would amount to about $444.
What to do if you still owe money on your automobile when it dies?
If your new automobile keeps breaking down while you still owe money to the loan company, find out about the auto lemon laws in your state. If you meet these requirements, you could compel the manufacturer to give you a replacement vehicle.
- You have a significant flaw that is still covered by the original warranty and isn’t time- or mileage-related.
- After a reasonable number of efforts or time spent in the shop, the dealer or manufacturer is unable to fix the fault.
The Better Business Bureau offers a service to help consumers resolve disputes about warranty, lemon law, and class action lawsuits. If you need assistance asserting your legal rights, turn to this resource.
However, bear in mind that when you purchase a secondhand car, lemon rules frequently do not apply. Repeated breakdowns of used jalopies require a different solution, therefore locate it.
Does negative equity get covered by gap insurance?
Although the fundamental idea behind gap insurance is simple to comprehend, what precisely does it cover? Although gap insurance coverage is extremely flexible, you should be aware that it only pays for damage to your car and does not cover any other property damage or accidents-related injuries. Here are some frequently asked questions about gap insurance coverage.
Does gap insurance cover deductible costs?
No. You would still be responsible for your deductible even if your gap insurance coverage covered the accident. In other words, your total reimbursement would be $3,500 if the “gap reimbursement amount” is $4,000 and your deductible is $500.
When an automobile is totaled, who receives the insurance payment?
Whether or not your automobile loan is funded will determine who the insurance company will pay when they declare your vehicle a total loss. Once a price has been decided upon, the payment could be made as follows:
- automobile loan The insurance company must deliver the settlement amount—or the percentage required to pay off your loan—to the bank or finance company if you still owe money on your vehicle loan. The insurance company would provide you a cheque for the remainder of the settlement funds, if any were still available. Frequently, the settlement check will be written out to both you and your lender; you must sign the check before mailing it to your lender. The title to your car would be sent to the insurance company by the lender once it had been paid.
- No auto loan. The insurance company would pay you the settlement sum if your car had no loans attached to it.
You might be surprised to learn that the settlement with the insurance company does not pay the outstanding debt if you have a loan on your car. This is due to the fact that vehicle values decline rather than rise. People frequently owe more on their loans than their cars are actually worth. You would owe this sum and should make payment arrangements with your lender if there is still a balance on your auto loan after your settlement funds are paid to your lender.
What is gap insurance?
If your automobile is totaled or stolen and you owe more than the car’s depreciated worth, gap insurance, an optional form of auto insurance, can help.