Gap insurance covers the gap between what your vehicle is worth and what you owe on it. It is vital, especially when an element like theft threatens your vehicle. Hence, you need tips on gap insurance to get step-by-step detail on what to do about it.
In this post, you’ll be coming across various discussions relating to gap insurance. Each discussion will certainly answer a part of your questions on gap insurance. You don’t want to miss all these, so stick with me to the end of this post.
Learn how gap insurance works
If you lease a new car, the chances are that your car’s value will depreciate faster than your loan balance. Assume you borrow $30,000 to get a new Honda Accord that loses 30% of its value in five years. After four years, that car would be worth about $18,000 – but your loan balance would still be about $20,000.
Without gap insurance, if you crash your car in an accident or lose it to theft, issues might come up. There might not be enough money from your regular insurer or the auto financing company. Hence, they may not cover up what you still owe on your loan.
With gap insurance, you can make up any difference between your car’s worth and how much you owe. Gap insurance usually costs less than $100 per year for every $10,000 remaining loan balance.
Furthermore, they can protect against catastrophic loss from accidents and theft. It’s a small price to pay for peace of mind.
Get an estimate on the cost
While comprehensive car insurance covers you in case of an accident, most policies won’t cover you due to few damages. A gap exists if you total your vehicle, but its parts are worth more than what your insurer pays out. You could end up paying for repairs or looking for another old car to replace your car after damage.
Gap insurance bridges that space between the actual value and total cost. It helps cover any deductible associated with your auto insurance policy. It doesn’t matter if you get into an accident or even total your car—gap coverage can help protect your finances.
Most people who purchase new cars also buy some kind of auto coverage, either through their insurer or through agents. This protects them financially in case their vehicle gets into an accident or if they ruin it completely.
Know what to look for in a policy
The biggest thing to look for in a gap policy is whether or not it covers leases. Gap policies are designed to pay for what your car still owes on its loan if it damages. However, these policies often leave out cars that you lease.
To check if your current policy includes lease coverage, ask your insurer how much they would pay on damaged cars. So make sure you factor those into your decision as well. No matter which company you choose, just make sure it will cover all areas of your vehicles.
When your car falls under warranty
If your car has less than an 80% loan-to-value ratio, there’s a chance your loan provider won’t cover the damage. This can create a financial gap between what your insurer and loan provider. If you don’t have gap insurance (or if your coverage limit isn’t high enough), you’ll pay for repairs.
Imagine you fixing a car that’s technically not even yours. Make sure to buy a gap policy with at least $1,000 coverage. The term warranty covers parts and labor for two years or 24,000 miles.
After that point, cars start falling outside of their original warranties. Furthermore, most manufacturers only offer powertrain warranties (meaning engine/transmission) until 100k miles.
That means you could be looking at a hefty bill if something goes wrong after that point in time. If you bought a car within the last three years, the chances are that you’re still within your manufacturer’s powertrain warranty. Even if you aren’t, it might be worth considering buying some gap insurance anyway – just in case.
When you have overpaid on your car loan
If you’ve to pay a lot on your car loan, having a gap insurance card could be worth its weight in gold. Gap cards will help you make the difference between what your car cost before and its current value in the market.
Most experts recommend getting one if you’ve paid over sticker price or finance more than 100% of a new car. If you have insurance and are down 30% from your initial investment, your card will pick up where your insurer left.
How to calculate any missing down payment
If you’re buying a new car on credit, one thing you should consider purchasing along with your loan is gap insurance. Gap insurance covers any remaining loan balance that exists. Moreover, gap coverage for total loss also applies if anyone steals your vehicle and you cannot recover it.
It can be especially helpful if you have negative equity. In other words, if you owe more than your car is worth—when your car is under damage.
It covers the difference between what you owe and how much your insurer pays for a total loss claim. Without gap insurance, there would be nothing left to pay your lender once they pay their total loss claim.
Where to buy (and not to buy) a vehicle with gaps
There are two main types of gaps, one with a lease or an auto loan and one without. If you’re leasing a vehicle through a bank, make plans to close any gaps when your payments become due.
If you don’t have one, it may be time to consider getting some gap insurance protection. There are still options for gap coverage for those who already own their vehicles outright. Unfortunately, they aren’t as common as they used to be.
It can be worth checking in with your insurer if you think you might want coverage. If nothing else, knowing how much coverage costs can help you from being surprised by hefty bills if something happens.