Mind the Gap – Do you need Gap Insurance?

Imagine this: you’re at a car dealership, and with the money you have been working so hard to save, you put a down payment on your dream car. The next day, you’re at a stoplight, and someone rear-ends you so badly that the car you just bought gets totaled. All of a sudden, you’re stuck with a loan on a car that’s already depreciated just by you driving it off the lot. Scenarios like this are why gap insurance exists.

What is gap insurance?

Gap insurance is an optional car insurance coverage that kicks in when your car is stolen or deemed a total loss and your loan amount is more than your car’s market value. Gap coverage protects you from depreciation by paying the difference when you owe more than what the car is worth. It can cost as little as a few dollars a month.

Here’s an example of how it works. Let’s say you finance a car and its actual cash value is $25,000. Then, you get into an accident, but you still owe $30,000 on the loan. If your car is totaled and you have comprehensive, collision, and gap coverage, your insurance would pay you $30,000 (minus the deductible). Without gap insurance, you would only receive $25,000 (minus the deductible).

It’s important to know that to qualify for gap insurance you must also have comprehensive and collision coverage. Additionally, it only applies any time your car is stolen or totaled in an accident. Keep in mind that gap coverage doesn’t cover other property injuries as a result of an accident.

Car insurance policy paperwork.

If your gap coverage has a limit, it may not cover all of your outstanding balance if you owe a lot more than what the car is worth. It also might not cover additional charges on your loan, such as finance or excess mileage charges.

So, do you need gap insurance?

Some lease or loan companies might require you to get gap insurance on your car insurance policy. However, it’s not required by any state. If you’re considering getting this coverage, think about whether or not you’d be comfortable potentially paying for the difference between the remaining loan amount and the actual car value.

Gap coverage is a good idea if you:

  • Lease your car (often required coverage)
  • Finance your new car for 60 months or longer
  • Buy a car with a down payment of less than 20%
  • Purchase a car that will depreciate quickly
  • Plan to put a lot of miles on your car, which speeds up depreciation

However, if you own your car, or owe less than its actual cash value, you likely don’t need it.

While not all drivers need gap insurance, if you’re leasing or making payments on a car, you should consider it. Want to learn more about gap insurance and whether or not it’s a coverage you should purchase? Connect with us or request a free quote today!

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All health insurance sold is processed through the licensed entity of Baldwin Risk Partners.

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Leave the insurance to us.

Resources

All health insurance sold is processed through the licensed entity of Baldwin Risk Partners.

Guided Solutions is not affiliated with or endorsed by Medicare or any government agency. Guided Solutions does not discriminate based on race, color, national origin, age, disability, or sex.