Do You Need Gap Insurance When Buying A New Car
Gap insurance is meant to be used in conjunction with collision coverage or comprehensive coverage. If you have a covered claim, your collision coverage or comprehensive coverage would help pay for your totaled or stolen vehicle up to its depreciated value. According to the Insurance Information Institute (III), when you drive a brand-new vehicle off the lot, its value immediately decreases. And, most vehicles' value depreciates about 20 percent in the first year of ownership.
do you need gap insurance when buying a new car
Gap insurance coverage may apply if you're underwater on your auto loan (meaning, you owe more than the car is worth) when your vehicle is stolen or totaled. "Totaled" means that repair costs exceed the value of the vehicle. Whether a vehicle is declared totaled depends on state laws and your insurer's discretion.
Keep in mind that, in the above scenario, the car insurance reimbursement goes completely to your auto lender to pay off a car that's no longer driveable. If you think you would need help buying a new car after yours was totaled, you might want to consider purchasing new car replacement coverage. Some insurers sell loan/lease gap coverage and new car replacement coverage together, as a single add-on to a car insurance policy for a brand-new vehicle.
If you're considering buying gap insurance, it's important to remember that this type of coverage may only be available if you're leasing or financing a new vehicle. Then, think about how much you owe on your auto loan versus the value of your car. (You can get an estimate of what your car is worth by checking a site like Kelley Blue Book.) Do you owe more than your car is worth? Could you afford to pay the difference out of pocket if your car is totaled?
Gap insurance can come in handy when you buy a new car to cover the difference between its value and what you owe on the loan in the case of a total loss. If your lender requires it, check if you can get it from your insurance company before using the dealer.
Gap insurance is something you purchase in addition to a full coverage policy. Full coverage usually encompasses liability insurance, collision insurance and comprehensive insurance. You may want gap insurance if your vehicle is financed, especially if you only made a small down payment when you purchased your car.
Gap insurance does not cover theft. It only pays when your vehicle is totaled and you owe money on the loan. However, comprehensive insurance does cover theft, and lenders require comprehensive coverage on cars with auto loans.
Therefore, you need gap insurance if there is indeed a gap between what you owe and what the car is worth on a used-car lot. That is most likely to occur in the first couple of years of ownership, while your new car is depreciating faster than your loan balance is shrinking. You can cancel the gap insurance once your loan balance is low enough to be covered in full by a collision insurance payment.
A car dealer may offer gap insurance when you buy a car from a dealership. Dealership gap insurance is usually more expensive than if you purchase it through a car insurance company. To be sure you get the best deal when insuring your newly purchased car, compare car insurance quotes from multiple companies.
For example, if you owe twenty-five thousand dollars on your loan and your car is only worth twenty thousand, without gap insurance you'd receive a twenty thousand dollar payout. But with gap insurance you'd receive the extra five thousand needed to pay off your loan.
Gap insurance isn't required by any insurer or state, but some leasing companies may require you to purchase it. Also, when purchasing a new car, some dealerships may automatically add gap insurance to your loan; however, you can decline this coverage. Check your current policy to find out if you have gap insurance.
Once you add gap insurance, it applies for the duration of your policy. However, you won't need gap coverage for the entire length of the loan. Once you owe less than what the car is worth, you can drop the insurance.
Gap insurance isn't required by any insurer or state, but some leasing companies may require you to purchase it. Also, when purchasing a new car, some dealerships may automatically add gap insurance to your loan; however, you can decline this coverage.
Although most people purchase gap insurance when they begin a finance contract, some car insurance companies will sell it after the initial purchase date.
The insurer might not honor your gap policy if your car insurance doesn't include collision and comprehensive coverage. Lease contracts generally require you to carry collision and comprehensive at all times.
If someone steals your car or it's totaled in an accident, carefully follow all of your auto insurance company's requirements. For example, some companies require you to continue making car payments on your totaled vehicle until the money from the gap insurance is paid out.
If you're buying or leasing a new car, you can get gap insurance from the dealer or your auto insurance company. Usually, gap insurance is optional if you're financing a purchase, but it might not be optional if you're leasing a vehicle.
When you buy or lease a car, the dealer will likely ask if you want to purchase gap insurance when you discuss your financing options. Buying gap insurance from a dealer can be more expensive if the cost of the coverage is bundled into your loan amount, which means you'd be paying interest on your gap coverage.
You can typically add gap coverage to an existing car insurance policy or a new policy, as long as your loan or lease hasn't been paid off. Buying gap insurance from an insurance company may be less expensive, and you won't pay interest on your coverage. If you already have car insurance, you can check with your current insurer to determine how much it would cost to add gap coverage to your existing policy. Note that you need comprehensive and collision coverage in order to add gap coverage to a car insurance policy.
All insurers take your car model into account when setting the price of gap insurance. In general, high-end vehicles like a Tesla or Mercedes cost more to buy coverage for than cheaper vehicles like a Honda Civic.
You probably don't need to carry gap insurance forever. Once you pay down the loan to the point where it's worth more than you owe, you should remove gap coverage, as long as the terms of your lease allow it. In the event your car experiences a total loss, having gap insurance would not result in any extra payment.
There are two places to check whether you already have gap insurance: your existing car insurance policy and the terms of your lease or loan. Gap coverage is sometimes sold as an add-on from the dealer when financing a car, so check to see if you're already paying for it before you add coverage.
You don't need gap insurance once you're no longer upside down. After you have paid off enough of your vehicle's price that the amount you owe is less than the car's value, you can cancel gap coverage.
You should speak to both your insurer and lender or lessor through the process to get a sense of how long it might take. Crucially, you need to find out how the timing works between your next payment and when gap insurance payment starts covering the loss.
Remember that gap coverage only applies when conventional car insurance coverage doesn't fully service your financial needs. Knowing how gap insurance works is key to understanding whether it makes sense for your situation.
Gap insurance is a valuable option for many car owners needing an extra layer of financial protection. Say, for instance, that your car is totaled in an accident and is worth $3,000 less than the remaining loan balance.
Gap insurance can help make up the difference. It can also be beneficial when trading in a vehicle with negative equity, as it can help to offset some of those costs when rolling them over into another loan or finance agreement.
The cost of gap insurance coverage depends on your unique situation. A policy typically costs between $400 and $700 when you get it from a car dealership and $20 to $40 when it's part of an existing car insurance policy.
If you're buying a new vehicle, most car dealers offer gap insurance policies that you can customize to meet your needs. Gap insurance often provides additional benefits, such as rental car reimbursement or payment for certain charges when your vehicle is declared a total loss because of theft or accidental damage.
Your auto insurance policy will likely have a deductible, which you'll need to pay out-of-pocket before your coverage kicks in. Gap insurance may not help much if you have a high deductible because you would need to cover a significant portion of the loss yourself.
Gap insurance can be a lifesaver when you experience an unexpected car accident. If your vehicle is totaled and the cost of repairs is more than the value of your car, gap insurance will cover the difference.
GAP insurance is usually sold at a one-time cost. Typical GAP policies cost between $400 and $700 when wrapped into your loan by the dealer, and between $20 and $40 per year if you add it to your auto insurance policy. For instance, you can purchase GAP insurance from PenFed for $449 by adding it to your auto loan. The cost of GAP insurance will vary some based on four main factors:
GAP insurance is not required when you buy a car but is often required when you lease one. Many dealers include GAP insurance in your lease or financing agreement, and you may see a fee for it included with your other fees. 041b061a72