Do you owe more on your car than its market value? You could be in a dire situation and not even realize it. Learn more about gap insurance.
It’s a nightmare scenario. Your car gets totaled in a wreck.
Okay, no sweat. You have insurance, so you’ll be covered. Nothing to worry about.
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!
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 time-bomb, completely unaware of it.
Who Should Have 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 Shouldn’t Have Gap Insurance?
You shouldn’t have gap insurance if you own your car outright, or if you have equity that exceeds its current market value.
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, gap insurance costs about 5-6% of their combined cost annually.
So, if you pay $1,000 for comprehensive and collision, gap insurance 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 Buy Or Drop 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 your gap insurance. When you owe less than it’s worth, drop your gap insurance.
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.