No, you should not buy gap insurance from a dealer in most cases. Gap insurance from a car dealership typically costs much more than gap coverage from an insurance company, bank, or credit union, and the cost is usually added to your loan balance, meaning that you have to pay interest on it. The only reason to buy gap insurance from a dealer is if you cannot find the coverage options that you want from another source.
The cost of gap insurance from a dealership can range from $400 to $700, plus interest. On the other hand, gap insurance from your car insurance company will likely cost $20-$40 per year, or about 6% of your collision and comprehensive premium. If your insurer doesn’t offer gap coverage, standalone-policy providers sell it for $200+. Since you normally don’t need gap insurance for more than a few years, paying extra for dealership gap coverage isn’t usually worth it.
Pros and Cons of Dealership Gap Insurance
Dealerships have several arguments for why you should buy gap insurance from them, rather than from an insurance company. For instance, dealers might say they will cover your deductible while an insurer won’t, or that an insurer will only pay a portion of your loan. It is true that some insurers will only pay 25% of your car’s value, but others do not have a maximum. Similarly, insurance companies have different rules on whether they will pay your deductible.
Finally, dealerships argue that buying their gap insurance means you don’t have to worry about your rates going up or your policy being cancelled if you file a claim. However, it’s safe to assume that you’ll already be filing a collision or comprehensive claim if you need a gap insurance payout, so you won’t be able to avoid a claim by buying dealership gap insurance.
If you’re considering purchasing gap insurance, be sure to compare the coverage details and prices of dealership gap insurance with your other options. You should only buy gap insurance from the dealer if you decide it’s worth the higher price tag.
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