You need GAP insurance if you owe money on your vehicle, because it protects you from being upside down if you get in a collision.
About GAP Insurance
It’s a nightmare scenario. Your car gets totaled in a motor vehicle collision. Okay, no sweat. You have insurance, so you’ll be covered. Nothing to worry about right?
Wait a minute! Your insurance company says they’re going to pay the value of your vehicle – $18,000. But you have $24,000 left on your loan! What happened?
That’s just how insurance works, really. It’s designed to pay the current cash value of your vehicle – not the cost of your loan. So you could be sitting on a ticking time-bomb, and not be aware of it.
Who Should Buy GAP Insurance?
Generally, it’s for you if you don’t have much equity in your car. Specifically, it’s likely for you if you:
- Lease your car
- Finance for 5 years or more
- Paid less than 20% down
- Drive a lot – more than 15,000 miles each year
- Buy a car that depreciates rapidly (Jaguar XK, Mini Coopers, Hyundai Genesis, Cadillac CTS, Chevy Impala, and others)
Who Should Not Buy GAP Insurance?
You shouldn’t have it if you own your car outright, or if you have equity that exceeds its current market value.Â
How Much Does GAP Insurance Cost?
Fortunately, it’s not expensive. Your insurance company will ask you to have collision and comprehensive car insurance. Then, it costs about 5-6% of their combined cost annually.
So, if you pay $1,000 for comprehensive and collision, it costs $50 – $60 per year at most insurers.
That’s not much to pay in exchange for the peace of mind you get. And let’s say you do cause a car accident. GAP insurance comes in super-handy then.
You should be careful who you buy it from. The dealership sells car insurance, but it costs more to buy from your dealership than the insurance company. Dealerships routinely charge $500 – $1000 for GAP insurance, plus ask for an upfront payment, for the exact same coverage that costs $50 – $60 at many insurance companies.
Should You Drop Your GAP Insurance?
Find out by blue booking the value of your car. And remember, this is going to be tough. You’ll want to price your car as high as possible because – hey – it’s your car! And you love your car. But you have to try and be objective, and base the value on the true condition of your car.
When you owe more on your car than it’s worth, keep it. When you owe less than it’s worth, drop it. Insurers let you add or drop gap insurance at any time.
If you need GAP insurance, go ahead and get it. It doesn’t cost much, and it saves an awful lot of stress when you need it.
If you were in an automobile accident that was not your fault, you may be able to get the at-fault party’s insurance carrier to pay the diminished value. If you were also hurt in the collision a personal injury attorney can help you seek damages.
Suggest Reading
Tactics insurance companies use to reduce compensation
What can you do the insurance company denies your claim?
Should you repair or replace your vehicle after a collision?
Texas drivers beware: Motorists don’t carry enough insurance
Shane V. Mullen is an attorney licensed by the State of Texas for the general practice of law, and the Managing Partner at Mullen & Mullen Law Firm in Dallas, TX. His firm focuses exclusively on personal injury law and has been in business for 40 years. Before becoming a lawyer, Shane worked for his father as an accident injury claims investigator.
