Is car GAP insurance worth it?

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Key takeaways...
  • Gap insurance is a supplemental type of auto insurance that kicks in after you have a claim under one of your other coverages
  • The way that gap insurance works for a claim is that it covers the difference between what you owe on a car loan or lease and the actual value of the car at the time of an accident
  • Gap insurance is designed to protect a policyholder from depreciation of the car’s value the second that it is driven off of the lot
  • If you own a particular car that you know will depreciate very quickly after you take possession of it, then gap insurance could be a cost-effective way to protect yourself from having to pay on a loan or lease balance for a car that you can no longer drive
  • If your car is declared a total loss or is stolen and not recovered, having gap insurance is a way to guarantee that you are not going to have to pay the remaining loan balance after you receive a settlement check for the car

Gap insurance is a very helpful type of optional auto coverage that many policyholders get to protect themselves in the event of a total loss of their vehicle.

This typically means that the vehicle was stolen or was damaged so badly in an accident that the auto insurance company declares that the vehicle is totaled.

Gap insurance prevents you from having to pay whatever amount is remaining on your loan or lease for a car. If you own your car outright, then gap insurance would not be very helpful for you.

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Your Responsibility if Your Car is Totaled or Stolen

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If you are in a situation where your car is declared a total loss or was stolen, then you are already facing a headache. However, your situation may be much worse in those situations if you do not have gap insurance.

The reason why is that if you have a car lease or car loan, you are still responsible for paying the balance of that lease or loan amount. This is true even if you are no longer able to possess your car.

For a regular auto liability policy without gap coverage, the auto insurance company is not concerned with whatever you have left to pay on a loan when it determines the settlement amount of your claim.

Rather, the auto insurance company simply focuses on the actual value of your car right before it was damaged in an accident when trying to figure out how much your claim is worth.

Without gap coverage, the car owner is left to figure out what his or her remaining obligations are in regards to any loan or lease for the car.

If the settlement check that you receive from the car insurance company is less than what the remaining balance on your loan, you are stuck figuring out how to pay for the rest of the balance on your own.

This is a tough situation to be in because you are still going to have to pay for a car that you cannot even drive or have repaired.

When does it make sense to have Gap insurance?

Deciding whether gap insurance is worth it for your situation depends on a variety of factors, such as the depreciation rate of your car’s value and the terms of your loan or lease agreement.

These are the major considerations for deciding whether you should add gap coverage to your existing auto insurance policy.

– Will your car depreciate very quickly?

There are some cars that depreciate in value at a very fast rate. For example, if you have just financed or leased a car that is prone to requiring more repairs as the mileage accumulates, your car may be a good candidate for gap coverage.

Also, your personal driving habits will influence the rate at which the car depreciates in value. If you plan to put a lot of miles on your car very quickly, this might be a good reason why gap coverage could pay off for you. The more you drive your car, the faster its value goes down.

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– Did you make a very small down payment on your car loan?

If you did not make a down payment on your car loan, this means that you are financing a very large portion of the loan.

With more of the loan balance to pay back, the odds increase that you will get into an accident or otherwise damage the car beyond repair before the entire amount of the loan is paid off.

Gap insurance is a good way to make sure that you are protected in the event that an accident occurs early on in your loan.

– Did you have a long financing term?

The longer the period you signed up for to finance your loan, the longer it will take you to pay off the car.

This means that you have a higher probability of getting into a bad accident with the car and not having a significant portion of the loan paid off.

For car loan agreements with extended financing terms, you can have some serious peace of mind with gap coverage.

How can you have Gap insurance added?

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If you decide that having gap coverage for your car makes sense in your particular situation, then there are a few different ways that you can make sure that this coverage is added to your insurance.

Knowing your options before you go to finance or lease a car can help you to make a more informed decision in advance and hopefully save more money in the long run.

The lender or car dealership may offer gap insurance as part of your lease or finance agreement.

In this situation, the cost of your gap coverage could be rolled into your monthly car or lease payments. While this option may sound convenient because you can sign up for it at the same time that you sign for your car loan or lease, it may end up costing you more money.

Another consideration in having gap insurance added by the dealer or lender to your lease or finance agreement is that it could be more difficult to remove from your loan or lease agreement when you no longer need it for your car.

This is why going through a traditional car insurance company for gap coverage might make more sense.

Shopping for quotes on gap insurance coverage is quick and convenient online. You can check what the price would be to have it added as a coverage to your current car insurance policy.

You may find that it costs much less per month than you would expect through your current auto insurance provider. If you are not happy with that price, you can continue to shop around and see what your options are from other traditional auto insurance providers.

There will come a point when it no longer makes sense for you to pay for gap coverage on your vehicle. This could be when your loan term is coming to a close or if you are able to pay off your car early.

At that point, you should not waste money paying for coverage that you no longer need. You can contact your auto insurance company and request that the coverage be removed from your policy so that you are no longer paying for that cost in your premium.

Wrap Up on Whether Gap Insurance for Your Car is Worth It

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Whether gap insurance is a good option for you will depend on the value of your car and what the terms of your lease or car finance agreement are.

If you have extended payment terms or did not put any money down when financing your car, then gap insurance could end up saving the day if you have a totaled car early on in your loan or lease.

If you purchase gap coverage from a regular insurance company, you can have it removed from your policy when you no longer need it.

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