What Is Gap Insurance & Do You Need It?
Buying a new car can be both exciting and overwhelming. It’s fun to pick out a new ride, but it can also feel a little scary to make such a big purchase — especially when cars are known for losing their value so quickly.
In fact, if you had the bad luck of totaling your car soon after you purchase it, your insurance payout could be less than what you still owe on the loan.
If this scenario is keeping you up at night, it’s time to find out more about gap insurance:
What is gap insurance?
When a car is totaled or stolen, standard policies usually cover the current market value of the vehicle. This can be financially devastating if you still owe more on your loan than the vehicle is worth. Gap insurance is a supplemental (and relatively inexpensive) policy designed to help cover that potential difference.
How can you get it?
While your dealership may offer gap insurance via a one-time fee rolled into your loan payments, it’s likely we can offer you a much better rate. Reach out if you’d like to add gap coverage to your regular auto insurance policy.
Is it worth it?
While not everyone will need gap insurance, you might consider it in the following situations:
- Your down payment will be less than 20%
- You’re buying a car with a higher-than-average rate of depreciation
- You’ll be financing for 60 months or longer
- You’re carrying negative equity from a previous car loan
- You’re leasing the vehicle (in which case gap insurance may be required)
Remember, the idea of gap insurance is to avoid going “upside down” on your car loan. If you’re in a situation where the value of your car will remain equal to or above the amount of your loan, gap insurance wouldn’t be necessary.
Have questions about your insurance needs? Need to make an adjustment? Reach out today.