How Much Does Gap Insurance Cover

When Can You Cancel Gap Insurance

You don’t need to carry gap insurance indefinitely. As a financial tool, gap insurance only makes sense when there’s a gap to cover.

Keep an eye on your loan statements to see your current auto loan balance. At the same time, check the value of your vehicle to determine when you can cancel your gap insurance. When you’re certain you owe less than the car is worth, gap insurance is no longer needed.

However, you may want to wait until you have a buffer of $1,000 or more just in case your estimates aren’t 100% accurate.

How Does Gap Insurance Work After A Car Is Totaled

How does GAP insurance work after a car is totaled, and when might you need this kind of coverage? You may have heard the old saying that a car’s value depreciates by 25 percent the moment you drive it off the lot.

How does GAP insurance work after a car is totaled, and when might you need this kind of coverage? You may have heard the old saying that a car’s value depreciates by 25 percent the moment you drive it off the lot. While it’s not likely to be that much, there are a number of estimates out there that anticipate a loss of up to 11 percent in value on the first day you own the car. That means, quite simply, that you’re going to owe more on your car than it’s worth if you took out a loan, a condition known as ‘being underwater’ or ‘upside-down’ on your payments.

How Does The All

Lets imagine you come out of your house after a night of strong winds to discover that a limb from a nearby tree has landed on the top of your automobile and caused a significant dent.

You can file a claim with your comprehensive insurance because it covers this kind of damage, and then you can wait for the refund. Here are some of the most important things that will affect both the process and the end result.

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When To Consider A Medical Gap Insurance Plan

Gap insurance plans are supplementary insurance plans. If you already have health coverage, you may be wondering why you need gap insurance in the first place.

The answer is simple: in some cases, purchasing gap insurance can save you a lot of money on medical expenses by reducing extreme out-of-pocket costs. Knowing youre at least somewhat covered for very high medical costs also provides important peace of mind in your day-to-day life.

What Is A Gap Insurance Waiver

A gap waiver is different in that it is an agreement under which the creditor agrees to waive the lessee or debtors obligation for the difference between the gap amount and the actual cash value of the property. On a leased car, the cost of gap insurance or waiver is generally rolled into the lease payments.

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Do You Need Car Gap Insurance If You Have Full Coverage

Comprehensive auto insurance is full coverage. It includes collision insurance but also covers every unexpected calamity that can destroy a car, from vandalism to a flood. But it pays the actual cash value of the car, not the price you paid for it or the amount you may still owe on the loan. Gap insurance covers the difference.

Therefore, you need gap insurance if there is indeed a gap between what you owe and what the car is worth on a used-car lot. That is most likely to occur in the first couple of years of ownership, while your new car is depreciating faster than your loan balance is shrinking. You can cancel the gap insurance once your loan balance is low enough to be covered in full by a collision insurance payment.

What Is Loan Or Lease Coverage And How It Is Different From Gap Coverage

While the terms gap insurance and loan/lease coverage are often used interchangeably, they arent quite the same coverage normally. Gap insurance will pay the difference between the amount you still owe on a vehicle and actual cash value paid out by your car insurance company.

Lease/loan coverage typically has limitations on how much it will pay out, such as 25% over the determined ACV of your vehicle. Both are minus your deductible.

Say you have a $500 collision deductible and total your vehicle that is valued at $18,500 but still owe $25,000 on it. The difference between what you owe and what the value of is $6,500. After you pay your $500 deductible there is a $6,000 difference.

With a gap insurance policy, it would pay out this full amount. With lease/loan coverage that pays only up to 25% over the value of the vehicle, it would only pay $4,625 . So, with the lease/loan option, you would still owe the remaining $1,375.

To make sure lease/loan coverage would work for you, run the numbers. For instance, if in the example above the vehicle was worth $20,000 then 25% of its value would be $5,000 and that is the same as the gap so it would have covered the whole amount.

Lets say you have loan/lease coverage that pays 25% more than the actual cash value of your car, and you buy a car for $40,000. Then the car depreciates to $25,000 over time. The most youd get reimbursed would be $31,250 minus the deductible after its declared a total loss.

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Where You Can Get Gap Insurance

Your car dealer may offer to sell you gap insurance on your new vehicle. However, most car insurers also offer it, and they typically charge less than the dealer. On most auto insurance policies, including gap insurance with collision and comprehensive coverage adds only about $20 a year to the annual premium.

Should You Buy Gap Insurance

If the cost of having your car totaled in the first few years you own or lease it will be a hardship for you, you should probably consider buying GAP insurance.

The average GAP insurance claim these days is between $3,200 and $4,500, says Tony Wanderon, president and CEO of National Auto Care in Ponte Vedra Beach, Florida. In recent years, GAP insurance providers have been taking underwriting losses. Claims are coming in higher and more often than underwriters predicted when they set prices. Those statistics indicate that GAP insurance is generally a good buy for consumers if your dealer or finance company doesnt mark up the policy too much and hide it in your loan.

According to the Insurance Information Institute , GAP insurance is worth considering under the following circumstances:

• Youre buying a new or nearly new vehicle.
• Youre financing it for 60 months or longer.
• You made a small down payment or no down payment at all.
• You rolled over negative equity from an old car to a new one.
• Youre buying a car that depreciates faster than most.
• Youre planning to drive a lot of miles early in the lease.
• Your interest rate is high, which means you build less equity in the early years of the loan, and you stay upside down longer.

You may want to skip the GAP coverage if:

• You made a big down payment.
• Your car loan term is 36 months or less.
• Youre paying the loan down ahead of schedule.
• You can easily afford the risk and would rather invest the money.

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Whom Should You Buy From

As with all financial products, you should shop around for GAP insurance. You have three options:

• Buy it from the car dealer or lender. This is typically a lump-sum premium. The dealer pays it for you, and then rolls the premium price into your loan, at your normal rate of interest.
• Buy it from your own auto insurance company. This is typically a monthly or six-month premium, and you wont be charged interest on it.
• Buy it from a specialty GAP insurance carrier. This is typically for a lump-sum premium.

Dealer-sold GAP insurance is almost always the most expensive option, by far. Dealer-sold premiums are often two to four times those available from third-party and stand-alone insurance companies, according to Steve Lehto, a Michigan attorney specializing in automotive and lemon laws. However, if you can handle the premium, dealer-sold GAP insurance may have some advantages:

Buying GAP insurance from your own insurance carrier has the advantage of a lower premium. If you add GAP coverage to your collision and comprehensive auto insurance policy, your premiums may be as low as $20 per year, according to the III.

Plus, since youre paying monthly, you can cancel the coverage as soon as youre no longer upside down on your loan. You may not have this option with lump-sum policies, especially when the premium has been rolled into your loan.

How Much Is Gap Insurance At The Dealership

The finance department at an auto dealership will almost always offer gap coverage, according to Lewis. Usually, they will offer to build the cost into your loan payments. However, its usually much more expensive than gap coverage offered by an insurance company.

In fact, some dealerships were found to mark-up gap insurance costs by 300%, according to the most recent research from the National Consumer Law Center, which did a report on add-on services and features at dealerships.

Typically, gap insurance through a dealership is billed as a flat fee. However, because the cost gets rolled into your loan, it could cost even more since you also end up paying interest on it.

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How To Complain About Your Insurance Provider

The insurance industry doesn’t have the best customer-service reputation and while a provider may be good for some, it can be hell for others. Common problems include claims either not being paid out on time or at all, unfair charges, or exclusions being hidden in small print. It’s always worth trying to call your provider first, but, if not, then

You can use free complaints tool Resolver. The tool helps you manage your complaint, and if the company doesn’t play ball, it also helps you escalate your complaint to the free Financial Ombudsman Service.

When You Might Need Gap Insurance

Gap insurance is not required by state law, but it may be required by lenders and lessors. Purchasing gap insurance may also be a good idea even if its not required, depending on your financial situation.

Specifically, you should look into purchasing gap insurance coverage if any of the following applies to you:

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Payout In Actual Cash Value

The real cash value of your vehicle is what your comprehensive insurance policy will pay you if it is stolen or completely destroyed by a risk that is covered by the policy, such as a flood. Please be aware that this is not the price that you paid for the car.

The actual cash value is a method for arriving at a number that is closer to the current market value, which can be thought of as the amount of money that someone may pay to acquire your car at the time of the event.

Under the actual cash value method, the age, condition, make and model and mileage of your car are used to figure in depreciation.

The rate at which cars lose value over their first five years varies greatly, with the average loss being 49.1 percent. The first five years of ownership of a Jeep Wrangler will see a depreciation of around 32.8 percent, while the first five years of ownership of a Lincoln MKZ will see a depreciation of 67.1 percent.

The actual cash value of your vehicle and the deductible on your insurance policy both play a role in determining the amount of compensation you will receive in the event that it is stolen or completely destroyed.

For instance, if your 2018 Chevrolet Malibu, which is worth $10,322, was stolen and you had a deductible of $500, the most that your insurance company would pay out is $9,822 in compensation. On the other hand, if you have a deductible of $1,000, the most that you might collect is $9,322.

Saving On More Common Medical Expenses

Some gap health insurance policies aim to lessen the burden of more common and frequent medical needs rather than serve as protection for worst-case scenarios. For these types of gap plans, try to receive coverage only for the services you think youll end up needing to keep your monthly premium down. An efficient gap health insurance plan provides savings on medical expenses without increasing your monthly premium to the point where the premium increase equals more than the savings.

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Can You Buy Gap Insurance Anytime

Gap insurance providers terms and guidelines differ in general gap insurance is available on new, used and refinanced cars, trucks and SUVs leased, purchased or refinanced within the past 12 months. So if you know within the year after financing, leasing or refinancing your vehicle that you owe more than its ACV gap coverage could be beneficial for you.

Gap Insurance Claims Are Rising

GAP insurance is becoming more important to consumers as car loan terms get longer and longer. According to data from Experian, the average term on a new-car loan is now a record 68 months. Further, 84-month terms are becoming increasingly common. A growing number of people are even financing cars over 96 months.

In most cases, the longer the term, the lower the monthly loan payment which means youre going to be upside down for a longer period of time and drive more miles while youre upside down.

Thats why both the frequency and amount of GAP insurance claims are on the rise.

If you have a small down payment and a long loan, say, between a 36- and 96-month term, chances are youre going to be underwater for a long while. Youll owe more on the car than its worth. And unless you can easily write a check for the difference, you may need GAP insurance. In fact, most finance companies will require it if they project that youll owe more than the car is worth in the first couple of years.

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Gap Insurance Coverage Examples

Heres how it works. Pretend for a minute that youre in a car accident and youre not at fault. Your car is damaged beyond repair, and you still owe $24,000 on your car loan, but the depreciated value of your fancy new car is only $20,000.

If you have GAP insurance in this situation, it will cover the $4,000 gap between what you owe on your car loan and what your car is worth after you pay your deductible.

Lets look at another example. Suppose you sideswiped a fence causing major damage to your leased car. The car is totaled so you make a claim on your collision insurance. Your insurance company agrees to pay you the depreciated value of the car minus your $1,000 deductible.

But wait. What about the money you still owe on the lease? Youve only paid six months of the lease so far, and you still owe $22,000. This is when GAP insurance can be a lifesaver. It will pay for the difference between the amount you get for your destroyed car and your lease balance. So, instead of getting a check from your insurance company for $17,000 , youll get $22,000 so you can pay off your lease.

Now that you know what GAP insurance does cover, lets dive into what it doesnt cover.

Can I Get Gap Insurance Without Primary Insurance

You need to have a standard auto insurance policy to get this coverage. For your gap insurance to be in effect, you need to carry physical damage coverages of collision and comprehensive on your vehicle in addition to your states required minimum liability insurance requirements. This full coverage of liability and physical damage coverage is also normally required by the bank or lending institution where you got your car loan.

Even if you get a stand-alone gap policy, you still need your states minimum auto insurance coverage. Thats the insurance coverage you need to drive legally.

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Is Gap Insurance Required

Is gap insurance mandatory? In most cases, no. Typically, the only time gap insurance is required is if you lease or finance your car, where it will be included in the contract and youll commonly pay for it within the lease agreement for a fee. Other times, you probably wont be required to have the coverage. Be sure to check with your dealership and ask if its included.

But just because you might not be required to have gap coverage doesnt mean you should forgo it completely! Gap insurance only adds a few more dollars to your monthly or biannual policy, but it could save a big chunk of money in the long run.

Do I Need Gap Insurance

Gap insurance isn’t required by any insurer or state, but some leasing companies may require you to purchase it. Also, when purchasing a new car, some dealerships may automatically add gap insurance to your loan however, you can decline this coverage. Check your current policy to find out if you have gap insurance.

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What Are The Pros And Cons Of Gap Coverage

The main advantages of gap coverage come down to the cost and the safety net it provides. The main disadvantages are that it’s limited coverage and may not be available if you have an expensive car. Below is a table breaking down the pluses and minuses of getting gap coverage.