Gap insurance auto coverage is necessary only when the following two conditions are present:
1. You finance the purchase of your new or used vehicle.
2. You make a down payment of less than 20%.
And if you take advantage of one of the many 0 down 60 month deals you definitely need gap
coverage. This also applies to new car and truck leases as well.
You see, when you purchase any new vehicle with little or no money down it's a given that your
car will be worth less, thanks to depreciation, than the amount you borrowed. Sometimes the
difference can be thousands of dollars.
Eventually your car's value will catch up as you pay off the loan; but in the meantime, if your car
is destroyed you'll be stuck owing the bank what the insurance company doesn't pay. Hence the
need for gap insurance to make up this shortfall.
.
But even when you do need gap insurance, it is only necessary for as long as the outstanding loan
balance exceeds the actual cash value of your car. In most cases this means a period of 21/2 to 3
years. Usually by the end of the third year of payments your vehicle’s loan balance should
approximate the cash value of your auto.
At this point the gap insurance could be discontinued; but only if it was purchased as a rider to a
comprehensive policy sold by an insurance company.
However, if you purchase gap insurance auto coverage from a dealership it cannot be cancelled
because you make a one time, up front payment. This restriction applies even if the premium is
rolled into the car loan and paid off over time.
Another significant difference between purchasing gap insurance from an insurance company or
dealership is cost. Gap insurance coverage purchased through a dealership can cost anywhere
from $500 - $700, while the same coverage purchased through an insurance company will add only
5 or 6% to the cost of your collision coverage, or about $30 per year.
So if your loan balance and the cash value of your auto reach parity in 3 years as suggested
above, you will have paid a total of approximately $90 for gap coverage as opposed to hundreds
of dollars more for the same coverage from a dealership.
Now, as if $30 a year isn't reasonable enough, it is possible to reduce this amount even further.
Since the cost of gap auto coverage is a percentage of the cost of comprehensive coverage, the
less you pay for comprehensive collision coverage, the less you will pay for gap.
This presents a win, win situation for every new car owner in need of gap insurance; especially if
you have the time to compare multiple quotes from insurance carriers currently competing for
your business.
However, not all insurance companies offer gap insurance auto coverage. For a list those who do,
please see our gap insurance buying guide.
1. You finance the purchase of your new or used vehicle.
2. You make a down payment of less than 20%.
And if you take advantage of one of the many 0 down 60 month deals you definitely need gap
coverage. This also applies to new car and truck leases as well.
You see, when you purchase any new vehicle with little or no money down it's a given that your
car will be worth less, thanks to depreciation, than the amount you borrowed. Sometimes the
difference can be thousands of dollars.
Eventually your car's value will catch up as you pay off the loan; but in the meantime, if your car
is destroyed you'll be stuck owing the bank what the insurance company doesn't pay. Hence the
need for gap insurance to make up this shortfall.
.
But even when you do need gap insurance, it is only necessary for as long as the outstanding loan
balance exceeds the actual cash value of your car. In most cases this means a period of 21/2 to 3
years. Usually by the end of the third year of payments your vehicle’s loan balance should
approximate the cash value of your auto.
At this point the gap insurance could be discontinued; but only if it was purchased as a rider to a
comprehensive policy sold by an insurance company.
However, if you purchase gap insurance auto coverage from a dealership it cannot be cancelled
because you make a one time, up front payment. This restriction applies even if the premium is
rolled into the car loan and paid off over time.
Another significant difference between purchasing gap insurance from an insurance company or
dealership is cost. Gap insurance coverage purchased through a dealership can cost anywhere
from $500 - $700, while the same coverage purchased through an insurance company will add only
5 or 6% to the cost of your collision coverage, or about $30 per year.
So if your loan balance and the cash value of your auto reach parity in 3 years as suggested
above, you will have paid a total of approximately $90 for gap coverage as opposed to hundreds
of dollars more for the same coverage from a dealership.
Now, as if $30 a year isn't reasonable enough, it is possible to reduce this amount even further.
Since the cost of gap auto coverage is a percentage of the cost of comprehensive coverage, the
less you pay for comprehensive collision coverage, the less you will pay for gap.
This presents a win, win situation for every new car owner in need of gap insurance; especially if
you have the time to compare multiple quotes from insurance carriers currently competing for
your business.
However, not all insurance companies offer gap insurance auto coverage. For a list those who do,
please see our gap insurance buying guide.
Gap Insurance Auto Coverage
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