Written by Gap Insurance – Common Questions:
“What is Gap Insurance?”
“How Much Is Gap Insurance?”
“Do I Really Need Gap Insurance?”
“How Do I get Gap Insurance?”
“How Long Do I Need Gap Insurance?”
These are all common, and very good questions – let’s try to answer them.
What Is Gap Insurance?
By definition Gap insurance is a different type of car insurance that gives you the policy holder the peace of mind that if in case of an accident the difference between what your car is worth (actual cash value) and what your remaining balance is (payoff) on the vehicle will be covered.
How Much Is Gap Insurance?
Only a licensed insurance agent can you tell you exactly what your specific gap insurance plan will cost. There is no way to determine the cost of insurance without running key figures through risk assessment. Again, please speak to a licensed auto insurance agent to get an EXACT quote specifically for you, there are plenty of links on this site for free auto insurance quotes.
Do I Need Gap Insurance For A Leased Vehicle?
If you’re leasing an automobile it is a very smart move (and often written in to the contract) to have gap insurance. I’ll give you an example of why gap coverage is so important.
Let’s say you just leased a new $30,000 vehicle for 36 months. Your monthly payment is $300 with 7% interest and your balloon payment (this is lump sum payment due at lease end) is $21,000. Now, 6 months later let’s total the car. Whoops. Now you have an insurance adjuster out looking at the vehicle and he immediately declares it a total loss. The insurance company offers you a check for $24,000 (their estimated value of the vehicle with 20% depreciation). Can you see the problem here? Good.
The amount you purchased your car for (not including down payment, acquisition fee, tax, title & license fees) was $30,000 even. Within 6 months of ownership and $1,800 in payments ($300 x 6 months) you’ve managed to drop the loan balance to $28,200. However, since the amount you owe $28,200 is not the amount the insurance company is willing to pay out $24,000 – you owe an extra $4,200 plus applicable interest. Gap insurance was created for this exact scenario. It’s wise and often mandatory in a new car leases to purchase gap insurance so both you and the lender are covered in case of a total loss.
How Do I Get Gap Insurance?
Very simply. Ask your auto insurance company if they provide gap coverage. Talk to an insurance agent, look online, call around. Many company that offer auto insurance offer gap policies and often they are already built in to existing insurance plans.
How Long Do I Need Gap Insurance?
As long as you’re leasing a vehicle you should maintain gap insurance for the life of the contract. Since vehicles typically depreciate year after year and more so at the beginning, your remaining loan balance will show a large deficiency from what the car is worth and what you owe. If you’re leasing for 36 months, or 48 months – you are not likely to see depreciation in line with loan balance, therefore gap auto coverage is needed.
