John S Kiernan, Managing Editor
Gap insurance is a waste of money if you are not financing your vehicle or if you could pay the difference between your loan or lease balance and the actual cash value of your car out of pocket. Gap insurance is never mandated by state law, and it is only sometimes required by lenders or lessors. Thus, it is up to you to decide whether gap insurance is worth the cost in your situation.
Gap Insurance Might Be a Waste of Money When:
- You buy a used car. Used cars retain more of their value after purchase than new cars, so the gap between the loan or lease and the actual cash value of the car will be small. Therefore, you might be wasting money if you buy gap insurance on a used car.
- You make a large down payment. If you purchase a car for $35,000, for example, it’s actual value could fall to $29,000 in a year, leaving a gap of $6,000. But if you make a down payment of $6,000 or more and your loan balance remains below the depreciating value of your car, then gap insurance is unnecessary.
- You can cover the gap yourself. The difference between your car’s actual value and the balance on your loan or lease may be small enough that you could pay it out of pocket. If it’s not too much of a burden, this is the better option, as you will not have to pay for gap insurance.
- The cost of the policy is close or equal to the gap itself. If you would be paying the same amount for gap insurance as the gap in coverage itself, it makes more sense to skip the coverage and pay out of pocket if your car is totaled.
Ultimately, whether gap insurance is a waste of money depends on your individual situation. In many cases, gap insurance may be an unnecessary expense.
However, if you find that gap insurance isn’t a waste of money, WalletHub can help you find a policy that fits your needs.
To learn more, check out WalletHub’s guide to the best gap insurance companies.
I cannot stress how much I highly recommend having Gap coverage!
From someone who has been experiencing an insurance claim nightmare for the past 10 weeks . . . let me tell you the vital information I've learned about the importance of having Gap insurance!
If you are in an accident/your vehicle is deemed a total loss ("totaled") for any reason, the first thing your insurance company will do is determine the actual cash value (ACV) of the vehicle. Importantly, the ACV will be the amount of the check that your insurance company will agree to send to your lender. Obviously, the ACV of your vehicle will either be more or less than the pay-off anount that you owed your lender on the date of loss. If your insurance company determines that the ACV is less than the pay-off amount of your loan, and you DO NOT have GAP coverage, you will be responsible for paying the remainder of the loan amount.
IF YOU DO HAVE GAP, YOUR GAP INSURANCE WILL PAY THE REMAINDER OF THE LOAN IN FULL!
Tips: [A good insurance does most of this for you. Mine, Auto-Owners Insurance, DID NOT].
* Shop for the best, most addordable provider available. . . the dealership you use will not necessarily be partnering with the most affordable Gap provider.
* Educate yourself about the value of any vehicles you're considering purchasing (trade-in value, value if sold to an individual, ACV, etc.).
* Check the CarFax report of a vehicle you plan to buy. Know what you're getting (How many owners, number of accidents/past damage the vehicle incurred)!
* When shopping for a vehicle, get your insurance company to give you a quote on each vehicle to help you be informed about the total monthly cost of purchasing the vehicle.
* If you belive your vehicle may be a total loss:
- File your insurance claim immediately (Get a police report even if your insurance company and/or the police say you will not need one. . . you still have the right to request one and this will save you time, and a headache, before it's over).
- Contact your lender and your Gap coverage provider ASAP and notify them that your vehicle has been deemed a total loss. (Stay in contact with each entity at least once a week to ensure that you're doing all that you need to do, they have everything they need, and things are progressing in a timely manner.)
- Call your dealership and cancel any cancellable products asap (i.e., Extended Warantee; Dings and Dints coverage.) The dealership must refund any unused optional coveraged you opted into at the time of purchase. . . and it's usually about a 30-day turn-over period from the time the refund is officially requested and when the dealership will cut the refund check to your lender)! Follow up on the refund 30-days after submitting the cancellation request.
- Although you should have already reported the loss to GAP, contact them to file your official GAP claim as soon possible. Find out what all they need and wheter your insurance company is providing them with the information. Stay in contact and make sure the Gap company is getting all the many documents they must receive before they can send the claim on to the ascessor for the initial review (A GAP claim can take weeks to be settled so the faster they get the dicuments they need the faster your claim can be settled and your loan paid in full.
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