Is Gap Insurance Worth the Money?

Gap insurance or guaranteed asset protection helps bridge the gap between your car’s current value and what is owed on its loan if it gets totaled or stolen, providing protection at a nominal annual cost. Many auto insurers now include gap coverage as part of their policy packages for added peace of mind.

But is it worth the money? Your lender or dealer might offer it, or it can be included into your auto loan/lease payments – but is it really worth spending that extra cash on?

What Is GAP Insurance?

GAP insurance bridges the gap between your loan balance and its actual value, also known as guaranteed asset protection (GAP) or vehicle replacement coverage, to help prevent financial shortfall if your vehicle is totaled or stolen. Leasing new cars often requires GAP coverage as part of their lease agreements or auto insurer policies – many dealerships and insurers offer it.

GAP insurance can be especially helpful when the depreciation rate on a vehicle increases quickly, such as with sports cars or convertibles. Rapid depreciation could leave you upside-down on your loan payment and vulnerable to major financial loss should your car be totalled or stolen; GAP coverage provides invaluable protection from this risk and may well be worth paying extra for.

Your car valuation tool of choice could be Kelley Blue Book; when applying for loans you should also ask your lender about an estimated car value after one or two years so you can decide if GAP insurance is worth paying extra costs.

GAP insurance provides protection from an upside-down loan and other expenses not typically covered by auto insurance policies, such as rental costs, sales tax and license fees, car repairs and mileage charges. Since gap insurance will typically only pay up to the amount still owing on your loan agreement, be sure to factor these expenses into your budget before purchasing GAP coverage.

GAP insurance should be purchased when your car loan balance falls below its value, or at least one month before your loan term ends. Regularly check Edmunds or Kelley Blue Book to monitor how much owe on your loan. Also take into consideration any security deposits or down payments when making this decision.

How Does GAP Insurance Work?

GAP insurance covers the difference between your car’s current market value and what you still owe if it is totaled or stolen, providing peace of mind should its total loss occur. GAP coverage can either be purchased as a separate policy or included as part of an auto policy or lease contract agreement. Often times GAP coverage also pays for other related fees that may incur from theft or destruction such as rental car expenses or additional finance charges.

New vehicles depreciate quickly, often losing 15% or more before even leaving the lot. On average, new vehicles lose up to 20% of their value within one year after driving off of it; it is this rapid depreciation that makes gap insurance so important.

When buying a new car, your lender will require that you acquire gap insurance coverage. Your dealership or regular insurer might offer gap coverage; but to get the best value on GAP coverage shop around. GAP costs can be added directly onto your auto loan payment but be mindful that this could add significant costs over time.

If you’re still uncertain whether gap insurance is worth your while, do a quick online search to see how much your car would be valued at on an used car lot. Two trusted resources include National Automobile Dealers Association (NADA) and Kelley Blue Book as guides that will help determine its value.

Gap insurance is especially helpful to people purchasing vehicles through traditional auto loans or lease agreements, especially those making lower down payments of 20% or if their loan term extends over six months. Vehicle values tend to decrease more rapidly than principal payments on these agreements, leaving you exposed to financial hardship if it is stolen or destroyed.

Do I Need GAP Insurance?

GAP insurance may not always justify its extra costs; its value depends on your equity position in your car and whether or not you’re financing or leasing it. Also keep in mind that gap insurance only covers the difference between its actual cash value and what remains owing on any loans or lease agreements; not replacement costs.

GAP insurance should be considered by anyone purchasing or leasing a vehicle because vehicles depreciate rapidly after leaving the dealership, often losing up to 20 percent in value within just one year. GAP coverage helps cover any gaps between your loan or lease balance and your car’s resale value if it gets totaled or stolen.

Purchase gap insurance when making a significant down payment or trade-in – this will give your vehicle more equity, making gap insurance much easier to justify paying for. When financing for 60 months or longer, gap coverage becomes even more essential as this will create the greatest disparity between your loan amount and car value.

Gap insurance can be purchased either through your auto insurer or at a dealership, although dealer offerings typically involve adding it as an add-on to your loan; this option tends to be more costly due to interest accruing over the term of your loan contract.

Also, dealerships often charge higher premiums for gap insurance to increase profits and maximize profit. If a dealer offers you gap insurance, shop around to find the cheapest price – it could even be purchased online or from lenders directly if needed to save extra costs at the dealership! Finally, remember to cancel it as soon as you owe less than its value (check NAADA or Kelley Blue Book to determine this) in order to reduce loan amounts and save money over time with your car purchase loan amount.

How Much Does GAP Insurance Cost?

Gap coverage costs less when combined with car insurance than you might imagine. At CarEdge, we offer affordable gap insurance policies as an add-on to our policies and most Nisswa-area customers choose this option. On average, this coverage costs $20 annually–far cheaper than comparable policies available elsewhere! Gap insurance prices tend to correlate directly with overall car insurance premiums while it also takes the value of your vehicle into consideration–generally speaking more expensive cars have greater gaps than cheaper models.

Car dealerships or lenders may attempt to incorporate gap insurance costs into loan or lease payments, making the total more costly in the long run. Trusted Choice reports that dealers may charge high commission rates on this form of coverage; rolling it into your monthly bill may also mean paying interest charges on top of it all. If this form of protection is part of your financing or leasing agreement, be sure to request that it be removed from the bill – otherwise you could end up spending too much in total each month!

Purchase gap insurance separately from your regular auto policy may be more suitable for those not planning to finance or lease their vehicle, though prices for gap coverage will depend heavily on individual circumstances and insurer. It’s wise to shop around in order to secure the best rates.

Before purchasing gap coverage, it’s also wise to conduct some preliminary research on your vehicle’s actual cash value (ACV). Online pricing guides such as Edmunds or Kelley Blue Book can assist in this research; car depreciation calculators also can provide estimates as to how much its value may decrease over the term of your loan or lease agreement.

Gap insurance is an invaluable financial investment for vehicle lessees or financiers, but is optional for drivers who own their cars outright. Deciding whether or not to purchase gap coverage depends on each driver’s individual financial circumstances as well as how much debt the vehicle owes compared to its actual worth.