Do I Need Gap Insurance?
You may have heard of gap insurance — an added coverage on your auto policy that, in the event of a total loss on your vehicle, helps pay the difference between what your car is worth and what you owe on your lease or loan — but do you know if you actually need this coverage?
It’s quite common for someone to believe that their collision or comprehensive coverage will fully cover them if their car is totaled or stolen, but unfortunately this isn’t the case. We’ve highlighted a few key instances where having gap insurance will help financially protect you if you face a total loss. Let’s take a look.
How to Determine If You Need Gap Insurance
First and foremost, do you lease or finance your car? That’s usually a good determining factor in whether you should have gap coverage or not, but leasing or financing your car doesn’t always mean you need this coverage. Here are some ways to determine if you need gap insurance:
- The value of your car depreciates quickly — so quickly in fact that as soon as you leave the dealer’s lot, it’s worth almost 11 percent less than when you just bought it. So, if you end up getting into an accident on the way home, you could be upside down (which is when you owe more than what the car is worth) within minutes of your new purchase! Not good. Insert gap insurance — this will help cover that cost you still owe after your insurance pays for the actual cash value of your vehicle if it’s deemed totaled.
- Since this coverage only protects you when you owe more than your car is worth, if you’re at a point in your payment plan where you owe less than what your car is worth, then gap insurance doesn’t do much for you. Just make sure your loan payment consistently stays below the actual cash value of your car if you decide to forgo gap coverage.
- Were you only able to make a small down payment when you got your vehicle? Now is an important time to have gap coverage, since you probably have a pretty large outstanding loan. Assuming the value of your car is going to be less than what you owe on your loan, gap insurance can protect you from a substantial payment — maybe thousands of dollars. On that note, it’s definitely smart to have gap insurance if you have a new or expensive vehicle, since your investment is worth more.
Is Gap Insurance Required?
Is gap insurance mandatory? In most cases, no. Typically, the only time gap insurance is required is if you lease your car, where it will be included in the contract and you’ll commonly pay for it within the lease agreement for a fee. Other times, you probably won’t be required to have the coverage. Be sure to check with your dealership and ask if it’s included.
However, just because you might not be required to have gap coverage doesn’t mean you should forgo it completely! Gap insurance only adds a few more dollars to your monthly or biannual policy, but it could save a big chunk of money in the long run.
Where Do You Get Gap Insurance?
You can actually purchase gap insurance right at the dealership, but it typically is less expensive if you purchase it from an insurance company. Check with your agent to see how much it would cost to add the coverage to your policy.
Remember, if you lease your vehicle, the coverage may already be included in your lease contract, so ask your dealer if you’re protected and how much you’re paying for the coverage.
Now that you know some important reasons you might need gap coverage, connect with an American Family Insurance agent and ask about our lease/loan gap insurance — they’ll let you know how adding this smart coverage can protect you from the unexpected.
Still confused or want to learn more? Keep reading about gap insurance.
Related Topics: Car Insurance