What is gap insurance?
Gap insurance, sometimes referred to as Loan/Lease coverage, is an optional coverage you can add to your auto insurance policy or purchase separately through a car dealership. The purpose is to cover the gap between what you owe on your vehicle loan and the current value of the vehicle if it is totaled. New vehicles will depreciate at a faster rate than used vehicles. If you purchase a new vehicle, you’re more likely to run the risk of being thousands of dollars out of pocket in the event of a claim. So, should you buy Gap insurance?
Let’s take a look at the math:
New vehicle purchased one year ago: $45,000
Current depreciated value: $32,000
Loan balance: $38,000
Insurance gap: $32,000 – $38,000 = $-6,000
Average cost to add Gap coverage to auto insurance policy: $2.80/month per vehicle
How do you buy it?
This coverage is typically offered as an add on to your current auto insurance policy or as a separate policy through a car dealership. Many times the finance manager will show you their options when you’re purchasing a car along with extended warranties, scratch and dent coverage, key replacement and others. Check with your insurance agent to compare your options. Some advantages of adding to your current insurance policy vs a separate policy are only one deductible, lower cost and simplified billing. Your vehicle must not be older than 2-3 model years to be eligible in most cases.
Should you buy Gap Insurance?
If your car is 3 model years old or newer we would recommend adding Gap coverage. Taking into consideration the cost vs risk we feel this is a valuable coverage to add to your policy.
Partners Insurance, Inc. is an independent insurance agency with a 4.9 Google rating. We work with dozens of insurance companies to compare rates and coverages.