Is Gap Insurance Worth It?
Gap insurance pays for some or all of the difference between the balance of your lease or loan and the claims payout for a covered total loss.
Cars depreciate in value over time.
A car insurance policy only pays the car‘s actual cash value, which tends to decrease over time due to wear and tear. Actual cash value considers factors such as your car‘s make and model, mileage, and prior damage.
You will still owe the balance of your loan or lease, even if your car is totaled.
Gap insurance helps fill the “gap” between what you still owe to your lender and what insurance pays after a total loss. With gap insurance, you protect your financial commitment, not just the car.
Your lessor or lender might require gap coverage.
Financial institutions might require you to obtain certain limits of insurance, including gap coverage. This requirement ensures that you have the means to pay your loan even if you‘re involved in an accident.
The amount of coverage you receive with gap is a percentage of your car‘s actual cash value. Although it may not pay the full remaining balance of your loan, it can help to reduce your out-of-pocket cost.
Is gap insurance right for you?
If you answer “Yes” to one or more of these questions, gap insurance might be a good investment:
Did you make a down payment of less than 20% on your car loan or lease?
Do you pay the minimum amount on your loan or lease each month?
Is your loan/lease agreement longer than 60 months?
Did you purchase a vehicle that depreciates faster than average?
Did you roll over the balance of a previous vehicle’s financing into your new loan or lease?
It may be less expensive to obtain gap insurance through your auto insurance carrier than through a car dealer.
Gap insurance is not necessary if you have paid off your loan or lease, or if your balance is lower than the car’s actual cash value.