Everything you need to know about insurance basics, like coverage types, limits, cost and more.
Why You Need Gap Insurance Coverage
Whether you leased or bought it, a brand-new car is something to celebrate! At American Family Insurance, we want you to hit the road with peace of mind knowing you’ve got just the right coverage to protect your set of wheels. Our auto loan or lease assistance coverage (gap insurance coverage) is a great way to safeguard your car for the road ahead.
What Is Loan or Lease Gap Coverage?
Auto leases and loan terms often run 60 months or longer. When you add to that the fact that your car depreciates — usually 11 percent the minute it leaves the lot — people can quickly find themselves owing more on leases or loans than the vehicle is worth. Gap insurance coverage can pay the difference between the amount you owe on the car and the total cost to replace it with a new one.
If you are leasing your vehicle or have a vehicle loan, the loan or lease assistance coverage endorsement is probably a good fit for you. Here’s why: if you’re in an accident and your vehicle is a total loss, your auto policy will generally pay you for the actual cash value of your vehicle. Great! However, the value of the vehicle can be less than what you might actually owe, leaving you with a potentially hefty bill. Loan or lease assistance coverage helps pays the difference, or gap, to help lessen the financial load on your end.
What Does Lease/Loan Gap Insurance Cover?
Buying gap insurance coverage may be required by your lender. When financing is in play, lenders may also require you to purchase collision and comprehensive coverage to help recover the costs of replacing the vehicle in the event of a covered total loss. Because the car’s actual cash value (ACV) will typically be reimbursed in the event of a total loss with comprehensive or collision coverage, a gap insurance coverage is key to paying off the gap between what you owe and the ACV of the car because the vehicle depreciates in value over time.
Let’s say you get an auto loan for your car’s full value of $18,000. Months later, you’re involved in an accident where your coverage applies and the vehicle is considered a total loss. The actual cash value of the vehicle is $14,000 — which is what your insurance company will typically pay — but, because of the structure of your loan repayment, you still owe $17,000. This leaves you with a $3,000 bill for a vehicle you no longer have. If you have the loan or lease assistance coverage endorsement, that $3,000 gap is covered by insurance instead of it all coming out of your pocket.
When Do I Need to Get the Loan or Lease Assistance Coverage?
As you’re shopping for cars, it’s key to have your eye on this important coverage. At American Family, this insurance is only available when you’re adding a vehicle policy under your name. But you can remove the endorsement in the future. Once you owe your lender less than what your car is worth, you can remove the loan or lease assistance coverage endorsement coverage from your policy.
How Much Is Lease/Loan Gap Insurance?
This additional coverage to your policy adds only a few more dollars to your premium — but it could save you a lot of money in the long run. Your insurance agent can tell you just how this coverage will affect your premium, and they can help you better understand the right time to remove it. Keep in mind, some car dealerships offer this coverage at the time of sale, and you can purchase it at the time you add your vehicle with American Family Insurance.
Is Loan or Lease Assistance Coverage Enough?
Insurance companies won’t even offer this coverage unless you have comprehensive and collision coverage, which is what would help cover the actual cash value of the car.
Another important detail about this endorsement is that the loan must be a vehicle loan and be taken out only to purchase the vehicle. So, if you use a home equity loan to purchase a vehicle, this coverage would not be available. Additionally, this endorsement doesn’t pay for items such as extended warranties, credit life insurance, loan rollover balances or late payment penalties and fees. Finally, the most that will be paid under the Loan or Lease Assistance Coverage endorsement is 25 percent of the actual cash value of the vehicle at the time of loss.
Is Gap Insurance Worth It?
If your car is worth less money than you owe on its loan, gap insurance is a smart choice. One good way to analyze whether gap insurance coverage is a good fit is to determine your car’s current bluebook value at the time of purchase.
Check with Edmunds.com, and even run a Carfax on your vehicle to review publicly-available records and other factors that may impact its actual cash value. Once you’ve got that number, compare it against the amount you owe on it. If the amount you owe on the car is more than the ACV, then you should consider gap insurance coverage. Is gap insurance coverage worth the money? If you owe more than the car’s overall value, then it’s definitely worth it.
How Do I Find Out If I Already Have Gap Insurance?
Are you unsure if you already have gap insurance coverage? Take a look at your car insurance policy or contact your agent. It’s also important to note that if you lease a vehicle, your dealership probably requires you to have this coverage and might already include the coverage in your lease payment.
Before you buy gap insurance coverage and add it to your auto policy, give your dealership a call and check with them to see if it’s included in the price of financing your ride. If your dealership does offer gap insurance but you haven’t bought it through them, it may be a good idea to purchase gap insurance coverage through your own insurance provider instead — it’ll probably be less expensive that way.
Get Gap Insurance With American Family
Having auto loan or lease assistance coverage is just one more way to proactively protect what matters most. Give a call to your American Family Insurance agent about adding this coverage when adding a vehicle to your auto insurance policy — you’ll be happy you did.