How does gap insurance work after a car is totaled?

Gap insurance lasts for the length of the loan or lease when purchased from a dealership, and it lasts for as long as it remains on the policy when purchased from a standard car insurance company. Gap insurance is usually only needed for one to two years, since it’s useless when a car is worth more than the loan/lease balance.… read full answer

Gap insurance pays for the difference between a car’s loan or lease balance and its actual cash value if it is declared a total loss. Since new cars depreciate quickly, gap insurance can keep drivers from needing to make payments on a car that is no longer drivable. But depreciation slows down over time, so the gap between car value and loan/lease balance eventually disappears as the driver pays off the car.

As a result, you should keep an eye on the amount you owe and also estimate the car’s value using online tools like Kelley Blue Book. In general, it makes sense to cancel gap insurance coverage once your loan or lease balance is $1,000-$2,000 less than the car is worth.

Gap insurance costs $400 to $700 when purchased from a car dealership, in most cases. Gap insurance coverage from a car insurance company costs an average of $20 to $40 per year when it’s added to an existing car insurance policy.

Gap insurance covers the difference between what a leased or financed car is worth and how much the driver owes. Like any other type of insurance, the cost of gap insurance varies depending on the car’s value and the driver’s risk characteristics, such as age and claims history.… read full answer

How to Get Cheap Gap Insurance

Some car leases include gap insurance at no added cost. But besides this free coverage, buying gap insurance from your normal car insurance company is usually the cheapest option. On average, gap insurance will only add around 5% to 6% to your comprehensive and collision cost. But since gap insurance is a relatively uncommon kind of coverage, not every insurance company offers it.

If your insurer does not provide gap insurance, it’s a good idea to compare quotes and see if it would be worth switching companies. If not, some companies offer standalone gap insurance policies. Also, if you are financing a car through a bank or credit union, these institutions will usually offer gap insurance upfront for anywhere from $200 to $700.

How Much Is Gap Insurance from a Dealer?

Dealerships are often the most expensive source of gap insurance, costing around $400 to $700 up front. If you are buying gap insurance that is rolled into your loan, bear in mind that you will be paying interest on the gap insurance premium as well as the rest of the loan’s balance. As a result, you’ll actually end up paying more than the original cost. This also comes into play wherever else you might get auto financing and gap insurance at the same time, including banks and credit unions.

However, price is not the only factor that should affect your decision of where to buy gap insurance. You should also consider how long your gap coverage will last and how long you will need it. Similarly, some gap insurance policies will pay your deductible, although many will not. And most gap insurance policies do not pay for anything you owe from a previous car loan.