Gap insurance is not available to all drivers, and not all eligible drivers should purchase it.
Only if you financed the purchase of your car or if you leased it are you eligible for gap insurance. You shouldn’t think about buying gap coverage if you own your car outright.
Even if you financed your car, you only need gap insurance if your debt exceeds the value of the vehicle. Finding the monetary value of your car and deducting it from your debt is the easiest approach to figure out if you need gap insurance.
You won’t be able to determine the precise figure your insurance provider uses to determine the actual cash value of your car, but you can get an idea of it by visiting a nearby appraiser or checking Kelley Blue Book.
For instance, we discovered that a 2021 Honda Civic Touring’s Kelley Blue Book value is about $25,000. You are underwater on that automobile if you still owing $30,000, so gap insurance might be useful.
The best approach to determine if you need it is to calculate the difference between the value of your car and what you owe on it. Additionally, you might be more likely to want gap insurance if any of the following circumstances apply to you:
- Gap insurance may be necessary as a condition of your loan or lease in order to protect you in the case of a total loss. However, just because it’s necessary doesn’t mean your loan or lease will cover it, and you might be able to get less expensive insurance elsewhere.
- You chose a long lease or put little money down: Your automobile will probably depreciate more quickly than you are paying it off if you have a small down payment or a long lease, especially in the first few years of ownership.
- You drive a high-end or luxury vehicle: If you purchased a Cadillac or Lexus, you run a higher risk of having your loan balance exceed the value of the car because luxury autos degrade more quickly than other cars do.
- You make lengthy drives in your automobile: While every car loses value the moment you drive it off the lot, making long drives in a new car causes the value to drop much more quickly. The car loses value as you log more miles on it.
Most likely, you won’t always require gap insurance. As long as the terms of your lease permit it, you should stop using gap coverage once you have paid the loan down to the point where it is worth more than you owe. A total loss of your car would not incur any further costs if you have gap insurance.
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Is gap insurance worth it?
If the cost isn’t too high and you might end up with a sizable expense to pay off a car you no longer own, gap insurance is worthwhile. Calculate your current auto loan’s “upside-down” status by using the numbers. In the event of an accident, you can receive little to no payout if your loan payment is close to the real cash value of your car.
However, gap insurance is well worth the typically cheap cost if your car is worth significantly less than the amount still due on it.
When it’s not necessary, many policyholders don’t want to buy supplemental insurance. Keep in mind that when your car depreciates and you continue to make loan payments on a regular basis, your “gap” will decrease.
How to tell if you have gap insurance
Check your current auto insurance policy and the terms of your lease or loan to see if you currently have gap insurance. Before adding coverage, be sure you aren’t already paying for the gap because it is occasionally offered as an add-on by the dealer when financing a car.
Even if you have coverage, it’s always worthwhile to shop around to see if you can find gap insurance for less since auto dealers frequently charge extra for it.
Filling the GAP
In the event that your car is deemed a total loss, your current auto insurance might not be sufficient. The primary auto insurance settlement is frequently based on the market value of the car, which can be lower than the remaining sum under your finance or lease agreement.
Guaranteed Auto Protection (GAP) waives or pays the difference between the amount still outstanding on your loan or leasing agreement and your auto insurance payout (less specified fees and taxes).
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Total Loss Protection
GAP may lower or even eliminate your remaining payment if your car is deemed a total loss due to theft or unintentional damage but you still owe more on your loan or lease agreement. 2
Is gap insurance included by default?
Generally, you can only purchase gap insurance three years after purchasing a new car. Although insurance company policies differ, a business may need one or both of the following:
Three primary channels exist for purchasing gap insurance:
from a business that solely offers gap insurance. Online stores like Gap Direct frequently offer stand-alone gap insurance for a one-time purchase.
By way of the lender or the dealership, incorporated into your loan payments. With this arrangement, you pay interest on the gap insurance premium over the course of the loan, significantly increasing the cost of the coverage.
When you make a purchase through your dealer or lender:
If you have a car loan, first determine if gap insurance is specified in your contract. Although some lenders can insist on the coverage, this is uncommon. However, you will typically be required to purchase comprehensive and collision coverage by your lender.
Check your leasing contract because a dealer might automatically include gap insurance if you lease your vehicle.
You might be able to get gap insurance taken out of your contract if you already purchased it from your dealer and now want to purchase it from your insurer. If you change carriers, make sure you have coverage during the changeover.
Does gap insurance always come with it?
Californian Insurance Providers of Gap Insurance Although California insurance rules never require gap insurance, lenders and lessors sometimes demand it for vehicles that are financed.
How long is gap coverage valid?
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% over 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. It would only pay $4,625 with lease/loan coverage that only pays up to 25% over the value of the vehicle (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 car was worth $20,000 in the previous case, 25% of that amount, or $5,000, would be the difference ($25,000 payable – $20,000 paid by insurer plus your deductible = $5,000), and it would have covered the entire amount.
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.
Can the gap with Toyota be canceled?
Up to the longest time permitted, GAP must have the same duration as the finance or leasing agreement.
Only transferable if the original finance or lease agreement is changed. The original loan or leasing agreement will be transferred to the new owner.
Within 30 days of purchase, you can cancel your GAP and get a full refund. Unless a claim has been made, or unless state law specifies otherwise. Please consult your agreement from the time of purchase or contact your dealer about cancellation policies that extend beyond 30 days or state requirements. After cancellation, your GAP cannot be reinstated.
Note: Depending on when the Agreement was purchased, the benefits described below may change or somewhat differ.
How does my credit get impacted by a totaled car?
Your credit scores won’t be negatively impacted by car accidents, even if the damaged car was financed. Credit scores are simply determined by the data in your credit report; they do not take into account factors like your driving history or prior insurance claims.
Work diligently with your lender and insurer to ensure that the loan for the vehicle is fully paid off and closed in order to protect your credit. Until the loan total hits $0, whether that is because your insurer paid the lender back or you have paid off what was left over after their contribution, you are still responsible for making your car payments.
Even if your automobile is totaled after an accident, an accident can still have an impact on your auto insurance price. If you are eligible for accident forgiveness coverage, which is not offered by every state or insurer, you might be able to avoid this. It is provided by Allstate, American Family, Geico, Liberty Mutual, Nationwide, Progressive, The Hartford, Travelers, and USAA among other insurance providers.
Can my gap insurance be refunded?
Lump Sum Payment: You are qualified for a return on the unused amount of the gap insurance policy after paying off the policy in full. Paying your premiums on a monthly basis means that you will not be eligible for refunds for any previous months. In contrast, if you cancel early in the month, you might obtain a modest return.
Considerations for Canceling Your GAP Insurance
Before we get into the specifics of requesting a GAP refund, there are a few items to consider that might influence your choice:
- You’ll only receive a reimbursement for the GAP insurance that you haven’t used. For instance, you will only receive a refund for the remaining nine months of coverage if you cancel your policy after three months of coverage (if you paid for a year of coverage).
- Your method of paying your insurance bill will determine how much money you get back. You cannot receive a refund if you pay monthly because you have already paid for the coverage you have already gotten. The amount of your return, if you paid for your insurance all at once, will depend on how long you had been covered at the time you canceled your policy.
- It usually takes four to six weeks to get your money after canceling your policy and requesting a refund.
- Requesting a GAP insurance refund is required. The majority of insurance firms don’t always provide them.
Instructions for Canceling Your GAP Insurance Policy
Here are the detailed instructions. The actions listed below are predicated on you purchasing GAP insurance from your insurance company rather than the car dealership. (Hint: Getting it from your insurance company will cost you far less.)
- Contact your insurance company to begin the reimbursement procedure. Inform them that you wish to terminate your GAP insurance and receive a refund for the remaining coverage, along with your name and policy number. Remember, wait to do this until after your car has been lawfully sold, traded, or paid off your loan.
- To establish that your car was traded in, sold, or that you paid off your loan early, gather the necessary documentation and mail it to your insurance company.
- Any forms that your insurance provider requires for concluding the cancellation procedure should be filled out and sent.
- Reiterate to your provider that you want a return for the unused GAP insurance coverage if anything is still unclear. Within four to six weeks of your request to cancel, the majority of insurance providers will send you a check for your return.
A blown engine is it covered by gap insurance?
Even if you have full coverage, engine failure is typically not covered by auto insurance. The only exception is if the broken engine or mechanical issue can be directly connected to a claim that is covered.
If you are in an accident or your automobile is damaged because of a covered claim, your auto insurance policy may offer four standard insurance coverages that will pay for repairs. None of these insurance policies cover mechanical issues or an engine blowing up due to natural wear and tear.
The coverages and what they cover are listed below:
- Collision: Covers the cost of replacing or repairing your car following a collision.
- Comprehensive: Covers losses that do not come under collision insurance, including as theft, vandalism, cracked windows or windshields, natural disasters, and animal collisions.
- When you are at fault, liability insurance pays for the injuries or property damage sustained by the other party.
- In the event that you are involved in a collision with a negligent party who does not have sufficient liability insurance or no insurance, uninsured motorist coverage will pay for your vehicle’s damages.
Will gap insurance cover engine failure?
Engine breakdown is not covered by gap insurance, no. An auto insurance policy may contain gap insurance as an optional coverage. The difference between the book value of your totaled car and the balance you still owe on it will be covered if you have gap insurance. If automobile owners who finance or lease their vehicles are concerned about going “upside down” on their loan or lease if the car is totaled in an accident, they might think buying gap insurance.
This highly specialized coverage only becomes active in the event that your car is totaled in a covered claim. Engine failure, typical wear and tear, or other mechanical issues with your car are not covered by it.