In this post, we will cover how to determine if you have gap insurance. We will also use this chance to detail all you need to know about gap insurance and how to obtain one.
Gap insurance is an extra coverage that covers individuals who loan or lease their vehicles and owing more than the vehicle is worth.
It’s also known as guaranteed asset protection, and it assists you in recovering the difference between what you owe and what your insurance provider pays you following a total loss.
Gap insurance is only necessary if your vehicle is financed. Understanding how it works enables you to evaluate your possible obligation and decide if it is required.
Continue reading this post to learn more about gap insurance, how it is calculated, and how I determine if I have it.
What is Gap Insurance and How Does It Work?
Before we explore ‘how do I know if I have gap insurance,’ let us first define gap insurance.
Gap insurance covers drivers who loan or lease their vehicles and owe more on them than the vehicle is worth. This state is occasionally referred to as being “upside-down” or “underwater.”
Being upside-down is a regular occurrence when financing a new automobile, as new vehicles may lose value quicker than the loan is paid off.
You are more likely to be upside down if you make a lesser down payment or choose a longer loan term, as this will result in a slower drop in your loan balance.
Being in default on your auto loan is not always a terrible thing, but it puts you at an increased financial risk.
If your new automobile is totaled or stolen, your comprehensive and collision coverages will pay up to the actual cash worth of the vehicle.
However, you would remain liable for the difference between the loan balance and the car’s value. That difference is covered by gap insurance.
The Benefits of Gap Insurance
• Gap insurance protects you financially in the event of an accident.
• You may be able to acquire a more expensive automobile without fear.
• The annual cost is fairly modest, frequently less than $100.
The disadvantages of Gap Insurance
• At some point, the difference between what you owe and the automobile’s value will narrow to the point where the car becomes uneconomical to own.
• It is an additional expenditure on top of monthly payments and routine maintenance.
• If you first pay a modest price, this may not be necessary.
Where Can Gap Insurance Be Purchased?
Gap insurance is available from the majority of major automobile insurers, including State Farm, Progressive, Allstate, Esurance, Farmers, Travelers, Nationwide, 21st Century, and USAA.
The majority of businesses need drivers to have comprehensive and collision coverage in order to qualify for gap insurance, and other firms may have extra unique requirements.
If you’re solely interested in gap insurance, several auto dealerships provide it separately.
However, insurers frequently provide lower gap insurance prices than dealers. While auto dealers may state that you are required to have gap insurance or that you must get it from them, the decision to purchase gap insurance is entirely up to you.
What is Gap Insurance Coverage?
Gap insurance can be an advantageous addition to your auto insurance policy, but it only protects you in specific circumstances. When gap coverage will protect you (and when it will not):
• Gap insurance protects against theft; if your automobile is stolen, gap coverage will pay the difference between your comprehensive coverage and the worth of your car.
• Gap insurance also protects an automobile that has been totaled in an accident; in these instances, gap coverage will kick in.
What Gap Insurance Does Not Cover
• Gap insurance does not cover you if your vehicle is not totalled; it kicks in only if your vehicle cannot be repaired or is excessively expensive to repair.
• Gap insurance does not cover your deductible; regardless of whether you have gap insurance on your vehicle, you will still be liable for the comprehensive or collision deductible.
• Gap insurance does not cover bodily harm or death; it is solely applicable to vehicle damage and does not cover medical treatment, burial costs, or lost income.
Who Is a Good Candidate for Gap Insurance?
Not every driver qualifies for gap insurance, and not every qualified motorist should get it. Gap insurance is only available if you finance or lease your vehicle. If you own your vehicle outright, you are not required to get gap coverage.
Even if you financed your automobile, you only need gap coverage if the balance of your loan exceeds the value of the vehicle.
The most accurate technique to calculate if you require gap coverage is to establish the cash value of your vehicle and deduct it from the amount owed.
You will not be able to determine the precise amount your insurance company uses as the real cash worth of your vehicle, but you may get an idea of its value by contacting a local appraiser or consulting Kelley Blue Book.
For instance, we discovered that a 2017 Mini Cooper’s Kelley Blue Book value is around $13,000. If you owe $15,000 on that vehicle, you are underwater and might benefit from gap insurance.
Calculating the difference between the value of your automobile and what you owe is the easiest approach to determine if you require it. Additionally, you may be more likely to require gap coverage if any of the following apply to you:
Your lease or loan may require gap insurance to protect you in the case of a total loss.
However, just because it is necessary does not mean it is automatically included in your loan or lease, and you may be able to obtain more affordable coverage elsewhere.
You placed a little down payment or chose a lengthy lease: A low down payment or a longer lease term implies that your car’s value will likely depreciate quicker than you can pay it off, particularly during the first few years of ownership.
You possess a premium or high-priced automobile: Because luxury automobiles degrade more quickly than standard vehicles, if you purchase a Cadillac or Lexus, your loan balance is more likely to exceed the car’s worth.
You drive your car long distances: While every automobile loses value the moment you drive it off the lot, driving a new vehicle for an extended period significantly reduces the worth of the vehicle. The more miles you drive in your automobile, the less valuable it becomes.
You probably won’t need gap insurance indefinitely. Once you’ve paid off the loan to the point where it’s worth more than the balance owed, you should cancel the gap coverage, as long as the lease conditions permit.
If your automobile is totaled, having gap insurance will not result in an additional payment.
Is gap insurance a good investment?
Gap insurance is worth acquiring if the cost is not prohibitive and you may end up with a huge charge to repay a car you no longer own.
It’s critical to perform the arithmetic and identify your existing vehicle loan’s “upside-down” status. If your loan payment is close to the vehicle’s real cash worth, you may receive little or no compensation in the event of an accident.
However, if the value of your automobile is significantly less than the balance owing on it, gap insurance is well worth the often modest premium.
Many policyholders are averse to purchasing additional coverage unless it is absolutely necessary. Bear in mind that when your automobile depreciates and you continue to make monthly loan payments, your “gap” will close.
Calculate the value of your vehicle using a resource such as Kelley Blue Book.
How Do I Determine Whether I Have Gap Insurance?
How can I determine whether I have gap insurance? To begin, let us state that there are two sites to check to see if you already have gap insurance:
Your current automobile insurance coverage, as well as the terms of your lease or loan.
Gap coverage is occasionally marketed as an add-on by dealers when financing a vehicle, so check to see whether you’re already paying for it before adding coverage.
Even if you have coverage, it’s worthwhile to shop around for lower gap insurance, as auto dealers sometimes charge a premium.
Calculating Gap Insurance
Calculating your gap insurance is as simple as subtracting the current value of your car from the loan balance.
You should be able to visit your lender to see how much money you still owe, and Kelley Blue Book is an excellent resource for determining the worth of your vehicle.
It’s critical to keep in mind that the amount of gap insurance coverage decreases with time. At some time, it may be worthwhile to try discontinuing coverage, providing your lender permits it.
Obtaining a Gap Insurance Refund
Once you’re no longer upside down, you don’t need gap insurance. Once you have paid off enough of the purchase price of your vehicle to the point where the balance owed is less than the vehicle’s worth, you can discontinue gap coverage.
If you paid in advance for coverage, you will get a refund for any premiums not used. For instance, if you purchase six months of gap insurance and your automobile is paid off three months later, you will be eligible for a return for the remaining three months.
How Long Does Gap Insurance Take to Pay?
The time period between an accident and a gap insurance payout may theoretically be as low as five days, depending on your location, but it is far more likely to take several weeks, if not more than a month.
Each state has its own set of laws, and the procedure is complex.
Generally, it takes up to 30 days for an insurance carrier to declare a vehicle a total loss, however this can be extended.
After making a determination, the insurer will initiate the gap payment processing.
You should consult with both your insurance and lender or lessor throughout the procedure to ascertain the anticipated duration.
Crucially, you must ascertain the date of your next payment and the point at which the gap insurance payment begins to compensate the loss.
When does gap insurance become ineffective?
Gap insurance is ineffective in a broad variety of scenarios, most notably those that do not involve a catastrophic loss. If your automobile is repairable following an accident, gap insurance will not pay out. Several instances in which you will not get a gap insurance reimbursement include the following:
• Normal wear and tear repairs
• In the event that the engine fails
• Following a minor collision in which the car is not completely destroyed
• Carryover funds from a previously leased vehicle
• Accidents and medical expenses
• A rented vehicle following an accident
• A substitute vehicle