Gap Insurance: When To Buy And Why

Gap insurance, also known as guaranteed asset protection, covers the difference between the amount owed on a vehicle and the insurance payout in the event of theft or total loss. It is not mandatory to buy gap insurance at the time of taking out a loan, but it is often limited to cars that are less than three years old. It is also available as a standalone policy from specialty insurers, usually sold at dealerships. If you are considering buying gap insurance, it is recommended to shop around for the best quote and compare rates from different providers.

When is the best time to buy gap insurance?

The best time to buy gap insurance is when you need it. Gap insurance covers the difference between the value of a totalled vehicle and what you owe on a loan or lease. This type of insurance is particularly useful for those who have financed a new car and are concerned about rapid depreciation.

You can buy gap insurance at any time before your loan is paid off, but it's often limited to cars that are less than three years old. The most common time to purchase gap insurance is when you buy your car. However, you can also purchase it after the fact, but be aware that different insurance companies have different rules about when you can do that. For example, some insurance companies only offer gap insurance for recent model years or cars under a certain mileage.

If you buy gap insurance through a car dealership and the cost is rolled into your car loan, you may be unable to cancel it. It's worth noting that gap insurance becomes a better bet if you have a large car loan or you bought a vehicle that quickly depreciates in value.

You can add gap insurance to your auto insurance policy within 30 days of purchasing the vehicle. However, if you have an accident within those 30 days and haven't added the coverage yet, you won't be able to add it afterward.

When deciding whether to purchase gap insurance, it's important to consider the difference between the value of your car and the amount you still owe on your loan. If there is a significant gap, gap insurance might be a worthwhile investment.

Can you buy gap insurance at any time?

Yes, you can buy gap insurance at any time after buying a new or leased vehicle. However, there are usually qualifications based on your vehicle's model year and mileage. For example, while some insurance companies may offer a limited amount of time to purchase coverage, others may only offer gap insurance for recent model years or cars under a certain mileage. Some insurance companies may require you to request gap insurance within 30 days of leasing or financing the vehicle.

Gap insurance, also known as guaranteed asset protection, covers the difference between the amount owed on a vehicle and the insurance payout in the event of theft or total loss. It bridges the gap between what you owe on your car loan and what your car is actually worth. It is worth noting that gap insurance does not cover other property or injuries resulting from an accident, nor does it cover engine failure or other repairs.

The most common time to purchase gap insurance is when you buy your car. However, you can also buy it at any time before your loan is paid off. If you are buying or leasing a new car, you can get gap insurance from the dealer or your auto insurance company. Buying gap insurance from a dealer can be more expensive if the cost of the coverage is bundled into your loan amount, which means you will be paying interest on your gap coverage. On the other hand, buying gap insurance from an insurance company may be less expensive, and you won't pay interest on your coverage.

The relatively small cost of gap insurance can be worth it if you owe significantly more on your car loan or lease than the vehicle's worth. When your loan balance is about equal to or lower than your vehicle's value, you can drop the gap insurance from your policy as it is no longer needed.

What is the average cost of gap insurance?

Gap insurance is an optional auto insurance coverage that applies if your car is stolen or deemed a total loss. It covers the difference between the value of a totaled vehicle and what you owe on a loan or lease. It is worth noting that gap insurance does not cover other property or injuries resulting from an accident, nor does it cover engine failure or other repairs.

The cost of gap insurance varies depending on several factors, including the value of your vehicle, your auto insurance company, and the loan amount and duration. Generally, gap insurance costs around $20 to $40 per year when added to an existing auto insurance policy. When purchased through a dealership or lender, the price might be slightly higher, averaging around 5% of the collision and comprehensive portion of your auto insurance premium. On average, adding gap coverage will add around $60 a year to your car insurance cost.

Some factors that may influence the cost of gap insurance include:

• The make and model of your vehicle: More expensive cars might have higher gap insurance costs.
• The insurance company: Different providers may offer varying prices for gap insurance.
• Loan amount and duration: Longer loans with larger amounts may result in higher gap insurance prices.

It is important to note that gap insurance is not mandatory for drivers, but it can provide valuable protection in certain situations. It is worth considering if you have a large car loan, a vehicle that depreciates quickly in value, or if you owe more on your vehicle than its worth.

What does gap insurance cover?

Gap insurance is an optional auto insurance coverage that applies if your car is stolen or deemed a total loss. It covers the difference between the amount you owe on your car loan and the car's value if it is stolen or totaled. This "gap" occurs when the value of a new vehicle starts to decrease, which can happen right after purchase. Once you buy your car, its value starts to decrease, sometimes significantly. If you finance or lease a vehicle, this depreciation leaves a gap between what you owe and the car's value.

For example, if you owe $25,000 on your loan and your car is only worth $20,000, your gap coverage covers the $5,000 gap, minus your deductible. Gap insurance becomes a better bet if you have a large car loan or you bought a vehicle that quickly depreciates in value. The average car depreciates by 38.8% after five years, according to a study by iSeeCars, which analyzed more than 1.1 million car sales. Electric vehicles depreciate faster than other vehicle types, losing about half of their value in five years. Certain types of luxury cars depreciate at a much faster rate. For example, the Maserati Quattroporte, BMW 7, and Maserati Ghibli all depreciate by more than 60% over five years.

Gap insurance may not cover additional charges related to your loan, such as finance or excess mileage charges. It also doesn't cover other property or injuries resulting from an accident, nor does it cover engine failure or other repairs. To qualify for gap insurance, you must have comprehensive and collision coverage on your policy. Lenders typically require this when you have a lease or loan. Gap insurance typically lasts until you drop it, and it can be worth it if you owe significantly more on your car loan or lease than the vehicle is worth.

When is gap insurance worth it?

Gap insurance is an optional, supplemental auto insurance coverage that applies if your car is stolen or deemed a total loss. It covers the difference between the value of a totaled vehicle and what you owe on a loan or lease. It is worth considering when:

• There is a significant difference between your car's actual value and what you still owe on it. For example, if you owe $25,000 on your loan and your car is only worth $20,000, gap insurance will cover the $5,000 gap (minus your deductible).
• You have a large car loan.
• You have bought a vehicle that depreciates quickly. Electric vehicles, for instance, depreciate faster than other vehicle types, losing about half of their value in five years. Certain types of luxury cars, such as the Maserati Quattroporte, BMW 7 and Maserati Ghibli, depreciate by more than 60% over five years.
• You have a very long loan term or high-interest rate.
• You have rolled negative equity from your last car loan into your new car loan.
• You have a smaller down payment on a new car.
• You have a longer financing term.

The relatively small cost of gap insurance can be worth it if you owe significantly more on your car loan or lease than the vehicle is worth. When your loan balance is about equal to or lower than your vehicle's value, you can drop the gap insurance from your policy.

Frequently asked questions