What Is Gap Insurance Coverage and Is It Worth It? | American Family Insurance
table of contents:
Do I need differential insurance?
What does gap insurance not cover?
How does gap insurance work?
Do I need differential insurance on a lease?
Does breach insurance cover theft?
is differential insurance required?
how to get differential insurance
Do I need differential insurance?
First of all, do you lease or finance your car? That’s usually a good determining factor in determining whether or not you should have gap coverage, 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:
- Your car’s value depreciates rapidly. if you end up in an accident on the way home from the dealership, you could be upside down (which is when you owe more than the car is worth) within minutes of your new purchase! not good. Insert Gap Insurance – This will help cover the cost you still owe after your insurance pays the actual cash value of your vehicle if it is considered totaled.
- since this coverage only protects you when you owe more than your car is worth, if you find yourself at a point in your payment plan where you owe less than your car is worth, then gap insurance doesn’t much for you just make sure your loan balance stays consistently below the actual cash value of your car if you decide to waive gap coverage.
- Were you only able to make a small down payment when you received your vehicle? now is an important time to have gap coverage, as you probably have a sizeable loan outstanding.
- if you are having trouble making your car payments due to financial hardship, disability, job loss, etc.
- any repairs to your vehicle
- the remaining balance of a loan that you may have transferred to your new auto loan
- pay for a rental car while your vehicle is in the shop
- extended warranties added to your car loan
- a down payment on a new car
- reduced value of your car after an accident
- You buy a car for $30,500, make a $500 down payment, and take out a $30,000 loan with monthly payments of $400.
- Now, imagine that four months later you have an accident and your car is totaled. Your insurance company decides that your vehicle’s actual cash value, or fair market value, is $26,000. they will pay this amount (minus the deductible) through your insurance policy’s collision coverage.
- However, due to the repayment structure of her loan, she still has $29,500 to pay, leaving a gap of $3,500. without gap insurance, you would be responsible for paying the entire difference. however, with gap insurance, you are only responsible for the $500 deductible.
- Having gap insurance eliminates this shortfall, as your insurance company will also pay for that $3,000 gap.
- Differential insurance is very important to those who lease a car, which is why many leases include differential insurance by default. Before you buy gap insurance, check to see if it’s already listed with the leasing company, dealer, or auto lease insurance company.
- If you lease or finance your car, your dealer will usually require you to have comprehensive and collision coverage, and once you purchase these you can also add gap coverage.
- Your deductible is usually not covered by gap insurance, but some plans do cover the deductible, so be sure to check with your provider.
- You may need to continue paying your lease payments until your insurance claim is fully settled.
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Assuming the value of your car will be less than what you owe on your loan, gap insurance can protect you from a substantial payment, perhaps thousands of dollars. Along those lines, it’s smart to have gap insurance if you have a new or expensive vehicle, as your investment is worth more.
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what does gap insurance not cover?
Although having gap insurance coverage can be a financial lifeline in the event you wreck your car and still have to pay the lease or loan, don’t misunderstand its purpose: Here’s what gap insurance doesn’t cover :
Quite simply, lease and loan gap insurance coverage protects you from being in a situation where you have to pay the difference out of pocket (for a vehicle you can no longer drive!), while also you have to pay for another vehicle too.
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how does gap insurance work?
Here’s the deal: When you drive your vehicle off the dealer’s lot, according to edmunds.com, its value depreciates about 11 percent, meaning your car is already worth less than what you just paid for it just a few days ago. minutes.
here is an example of how gap coverage works:
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Do I need differential insurance on a lease?
Differential insurance works similarly whether you lease or finance your car. As stated above, the value of the car depreciates the moment you drive it off the dealer lot. therefore, the market value of your rental car will be much lower than what is still owed on your lease.
If you total the car, you are responsible for the fair market value of the vehicle and what you still owe on the lease, also known as the gap. therefore, your insurance company will pay the actual cash value of your rental car, but you will pay for that gap, which could be in the thousands!
A few things to note about gap insurance for your rental car:
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does gap insurance cover theft?
To get the benefits of gap insurance if your vehicle is stolen, your auto insurance company will have to declare the vehicle a total loss. This happens in two ways: if your vehicle is recovered with enough damage from the people who stole it, or if your vehicle is never recovered; Usually insurance companies will have a waiting period to give your car time to show up. .
If your insurance company declares your car a total loss, it will pay the fair market value of the vehicle, which is sometimes less than what you still owe on the vehicle, even if it was stolen. so if you total your car and have a “gap” to pay, you may have to pay the same gap if your car was stolen.
Keep in mind that every insurance company is different, and while most cover theft under differential insurance, you’ll want to check how a stolen vehicle is handled with your specific provider.
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is differential insurance required?
Is differential insurance mandatory? In most of the cases, no. Typically, the only time gap insurance required is if you lease or finance your car, where it will be listed in the contract and typically paid for within the lease for a fee. other times, you probably won’t be required to have the coverage. be sure to check with your dealer and ask if it’s included.
But just because you’re not required to have gap coverage doesn’t mean you have to give it up entirely! gap insurance only adds a few dollars more to your monthly or semi-annual policy, but it could save you a lot of money in the long run.
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how to get differential insurance
You can buy gap insurance directly from the dealer, but it can be less expensive if you buy it from an insurance company. check with your agent to see how much it would cost to add coverage to your policy.
Remember, if you lease your vehicle, coverage may already be included in your lease, so ask your dealer if you’re covered and how much you’re paying for coverage.
Now that you know some important reasons why you might need gap coverage, connect with an American Family insurance agent and visit our lease/loan gap insurance page – your agent can help you add this smart coverage for that you are protected against the unexpected.
This article is for informational purposes only and includes information widely available from a variety of sources. this item does not offer or guarantee coverage.
