What is Gap Insurance? [Complete Guide on How it Works, How to Get it, and Best Companies to Get It from]

What is Gap Insurance?

Gap insurance is an optional type of auto insurance that helps bridge the gap between what a car is worth and what the driver owes on their auto loan or lease if the car is totaled or stolen. In such an event, a driver without gap insurance could be stuck paying the remaining loan or lease balance on a vehicle that they can no longer drive. Gap insurance covers the difference between the actual cash value of the car and the amount still owed on the loan. It is only available to those who are the original loan or leaseholder on a new vehicle, and it must be purchased within 30 days of leasing or financing the vehicle. Gap insurance is also referred to as loan/lease gap coverage, and it must be accompanied by collision and comprehensive vehicle insurance. A gap insurance addendum can be added to an existing car insurance policy. Gap insurance stands for Guaranteed Asset Protection automobile insurance and can be a smart addition to a collision insurance policy.

What are the Benefits of Having Gap Insurance?

1. Protection against the risk of having to pay for the full cost of repairs on your vehicle if it is stolen or damaged beyond repair.

Gap insurance is a type of protection that helps cover the difference between what your vehicle is worth and what you owe on your loan if your car is totaled or stolen. It can be a great option if you finance a car with a low down payment, have a long-term auto loan, or lease a vehicle. Gap insurance helps protect you from the risk of a large expense if your car is destroyed or stolen by covering the gap between the actual cash value of your vehicle and the amount still owed on your loan. It can also provide additional coverage for a newer or lower-mileage replacement vehicle if your current one is declared a total loss.

2. Coverage for vehicle depreciation if you are leasing a car.

Gap insurance provides coverage for the difference between what a vehicle is currently worth and the amount that you owe on it, in the event of a serious accident or theft. This type of coverage is especially important for those leasing a car, as vehicles depreciate quickly and the total cost of the lease, including taxes and any fees rolled into the agreement, may exceed the vehicle’s market value. It is important to compare the total cost of the lease to the vehicle’s MSRP to determine if you have a gap. Gap insurance can help cover the difference between your car’s actual value and the amount you still owe on it. This coverage can be particularly useful if you only made a small down payment and are still owing a sizable amount at the time of an accident.

3. Protection against having to pay for repairs or replacement of your car if it is damaged in an accident.

Gap insurance provides protection against a financial shortfall if your vehicle is stolen or totaled in an accident. It covers the difference between the actual cash value of your car and what you owe on your loan. This can be especially helpful if your vehicle has a fast depreciation rate, high mileage, or you paid a higher price on the loan than the car’s current worth. Gap insurance is an extra cost, but it can be worth the expense if you find yourself with a large bill to pay off a car you no longer have.

4. The ability to make a claim for the difference between the insurance payout and the actual cost of repairs or replacement.

Gap insurance helps to make a claim for the difference between the insurance payout and the actual cost of repairs or replacement in the event of a total loss of a vehicle. When an incident covered by insurance occurs, the insurance company pays out the actual cash value (ACV) of the vehicle minus the deductible. If this ACV is less than the amount still owed on the loan or lease, gap insurance will cover the remaining difference. For example, if the ACV is $17,000 and there is a $500 deductible, the insurance company will pay out $16,500. If the loan or lease amount is $20,000, gap insurance will cover the difference of $3,000. This helps protect the lender from buyers who might walk away from their loan or lease if the car is stolen or totaled. Gap insurance can also cover the total loan balance, including any rolled-over negative equity.

5. Flexibility to choose how much gap insurance coverage to get.

Gap insurance can help you determine how much coverage to get by allowing you to compare and contrast the amount you owe on your car loan or lease to the actual cash value of your vehicle. It can provide a significant degree of protection if you owe more than what your car is worth, but it does come with an extra cost. You have options for where to get gap insurance, such as through a dealership, a standard auto insurer, or a specialty gap insurance company, so it’s important to shop around, compare prices, and look into each company’s refund policy. When layering coverage, you can also combine gap insurance with other types of auto insurance coverage, such as liability, collision, and comprehensive, to get more protection.

6. Availability from a range of insurers with varying limits and premiums.

Gap insurance is available from most major car insurers, albeit with some limitations. Geico is the only major insurer that does not offer gap coverage. State Farm offers gap insurance, but it is only available for vehicles financed through State Farm Bank. Progressive offers up to 25% of the actual cash value for lease/loan coverage, while Allstate only offers it for new vehicles. Farmers provides gap insurance for new vehicles, and Travelers and Nationwide offer gap insurance with no stated limitations. 21st Century limits coverage to specific states, and USAA only provides gap insurance for vehicles financed with a USAA auto loan.

Premiums for gap insurance vary depending on the insurer and the vehicle, but they tend to be relatively affordable. Drivers should shop around for the best deal before committing to a policy. Standalone gap insurance policies are also available from car dealerships, though insurers usually offer better rates.

7. Coverage that is not typically included in standard car insurance policies.

Gap insurance is not typically included in standard car insurance policies. Gap insurance covers the “gap” between what a car is worth and what the driver owes on their auto loan or lease if the car is totaled or stolen. Without gap insurance, drivers can be stuck paying the remaining loan or lease balance on a vehicle that they can no longer drive. Other types of coverage that are not typically included in standard car insurance policies include extended warranties, security deposits, charges for credit insurance connected to the loan, a down payment for a new car, and car insurance discounts.

8. Ability to choose the preferred method of payment, including via credit card or check.

When it comes to gap insurance, there are several options available for paying for the coverage. These include: paying in full, making a down payment and then paying installments, and signing up for automatic payments. Additionally, some insurers may offer discounts if you pay in full or if you bundle gap insurance with other policies. It’s important to understand your insurer’s policies and the coverage that’s available in your state. Additionally, be sure to read your policy and know what exclusions may reduce the amount of coverage you get if you have a claim.

9. Peace of mind knowing that you can cover the cost of repairs or replacement if your car is damaged in an accident or is stolen.

Gap insurance provides financial protection for individuals who owe more on a car loan than the vehicle is worth. In the event of a total loss due to a crash or theft, gap insurance will cover the difference between what the vehicle is worth and what you owe on the loan. This type of coverage is especially beneficial if you have a long-term car loan, a low down payment, or if you lease a vehicle. It’s also an affordable option to protect yourself from the risk of a large expense. The annual cost is usually around $100 or less.

10. Opportunity to save money on your auto insurance by adding gap insurance to your policy.

Gap insurance can help save money on auto insurance by covering the difference between what a car is worth and what the driver owes on their auto loan or lease if the car is totaled or stolen. Without gap insurance, drivers would have to pay the remaining loan or lease balance on a vehicle that they can no longer drive, which can be extremely costly. By purchasing gap insurance, drivers can avoid this financial burden and potentially save thousands in the event of an accident. Additionally, gap insurance is usually cheaper when purchased through an insurance company, rather than a car dealer, so it is worth it to compare prices before purchasing a policy.

How Does Gap Insurance Work?

Gap insurance is a type of coverage that pays the difference between the amount owed on your loan or lease and the actual cash value of your vehicle. Here’s a step-by-step guide on how gap insurance works:

1. Check your paperwork to see if gap insurance is required. Some loan or lease companies may require you to purchase gap insurance.

2. Consider getting gap insurance if there is a significant difference between your car’s actual value and what you still owe on it. This could include a smaller down payment on a new car or a longer financing term.

3. If you decide to get gap insurance, it will cover the difference between the amount paid out by your comprehensive or collision coverage and the balance left over on your loan or lease.

4. If your vehicle is declared a total loss or stolen and not recovered, gap coverage will pay the difference between the remaining loan amount and the vehicle’s current value.

5. Progressive offers loan or lease payoff coverage which is like gap insurance but is limited to no more than 25 percent of your vehicle’s value.

6. Keep in mind that gap insurance might be necessary if your lender or leasing company requires it, but it’s not required by any states.

How to Get Gap Insurance?

Step 1: Research gap insurance options

Step 1: Determine if you already have gap insurance. Check your existing car insurance policy and the terms of your lease or loan to see if you are already paying for coverage.

Step 2: Research different gap insurance options. Consider buying gap insurance through the dealership, a standard auto insurer, or a specialty gap insurance company. Shop around to compare prices and understand the coverage you are getting.

Step 3: Make sure you understand the insurer’s refund policy. If you pay a vehicle loan off early, you may be entitled to a refund of the unused portion of your gap insurance. Be sure to keep your payoff letter, the original contract or insurance information and an odometer disclosure statement.

Step 4: Check with your state’s insurance regulations. Contact your state’s commerce department or insurance commissioner’s office to learn about your state’s regulations and what to do if your insurer refuses to issue a refund.

Step 2: Choose the right gap insurance policy

Choosing the right gap insurance policy can be tricky, but with the right information, it can be a simple process. Here’s a step-by-step guide to help you make the right choice.

Step 1: Determine if you need gap insurance. Gap insurance covers the gap between the actual cash value of a vehicle and the amount still owed on an auto loan if the car is totaled in an accident. If you have an auto loan, it might be a good idea to have gap insurance.

Step 2: Research gap insurance companies. You have a few options for where to buy gap insurance: through the dealership, a standard auto insurer or a specialty gap insurance company. Shop around between these three options to find the best deal.

Step 3: Check for refund eligibility. If you pay a vehicle loan off in full early, you may be entitled to a refund of the unused portion of your gap insurance. Some states require insurers to refund the premiums if, for example, a 36-month loan with gap coverage for 36 months is paid in 24 months. Make sure to contact your state commerce department or insurance commissioner’s office to learn more about your state’s regulations.

Step 4: Check existing auto insurance coverage. While you might feel like your auto insurance coverage is robust, auto insurers typically do not offer any one policy called ” full coverage ” that is designed to protect you against every possibility. Consider adding gap insurance to existing coverage if you feel you need more protection.

Step 5: Check your loan or lease terms. There are two places to check whether you already have gap insurance: your existing car insurance policy and the terms of your lease or loan. Gap coverage is sometimes sold as an add-on from the dealer when financing a car, so it’s worth checking to see if you’re already paying for it.

Step 6: Check your loan balance. Before you buy gap insurance, you should find out how much you still owe on your car loan. This will help you determine how much gap insurance you need.

Following these steps will help you make the best decision when it comes to finding the right gap insurance policy.

Step 3: Get a quote and compare rates

Step 1: Gather quotes from five top insurers that offer gap coverage, such as Erie, Farmers, Nationwide, Progressive and Travelers.

Step 2: For comparison purposes, collect quotes for five new cars: a Honda Civic, a Ford F-150, a Hyundai Santa Fe, Mercedes GLC300 and a Tesla Model 3.

Step 3: Using the statewide averages in Illinois, compare the quotes from the five top insurers to see which one offers the best rate for gap coverage.

Step 4: Once you have chosen the best rate, contact the insurer to receive a quote and start the process of setting up the coverage.

Step 5: Read and understand the terms and conditions of the coverage before signing any documents to ensure that it meets your needs and expectations.

Step 4: Fill out the application form correctly

How do you fill out the application form for gap insurance? [Step-by-step instructions]

1. Start by finding an agent who offers gap insurance. Ask them to provide you with an application form.

2. Read the form carefully and make sure you understand the terms and conditions.

3. Fill in the form with accurate details such as your name, address, car make and model, and the value of your car.

4. Review the form and make sure all the information is accurate.

5. Sign the form and submit it to the agent.

6. The agent will review the form and provide you with the gap insurance coverage.

7. If you don’t think the gap insurance is paying enough for a claim, you can ask for an appraisal. Check your policy for any deadlines to demand appraisal.

8. For more information on the appraisal process or understanding insurance in general, contact MediaRelations@tdi.texas.gov or refer to the TDI website.

Step 5: Obtain a policy certifica

If you’re looking to obtain a policy certificate for gap insurance, you should first contact the insurance company you’re considering. They will provide you with the details of the policy and the steps you will need to take in order to purchase and activate the coverage. Generally, this involves filling out an application and supplying proof of your current insurance coverage. You may also need to submit payment for the gap insurance policy, which will be listed in your policy certificate. Once you have completed all the necessary steps, your policy certificate will be mailed to you. To ensure you have the most up-to-date information, contact your insurer for the latest information about the policies and requirements for obtaining gap insurance.

Step 6: Start using your new car

Using your new car can help you get gap insurance by allowing you to compare the value of your car to your car loan/lease balance. The difference between the two is known as the gap, and it is an important factor to consider when buying gap insurance. This is especially true if you have taken out a car loan of five years or longer, made a small down payment of less than 20%, rolled negative equity from your last car loan, or bought a vehicle that depreciates faster than usual. Having a new car can help you determine the amount of gap insurance you need in order to protect yourself and your finances in the event of an accident or other incident.

Step 7: Take some time to learn how to use your new car safely

Step 1: Estimate your car’s value. To do this, look up the Kelley Blue Book or National Automobile Dealers Association value of your car and compare it to the current balance of your auto loan or lease. Remember to also factor in the deductible you’ll pay in the event of a crash or theft.

Step 2: Consider purchasing gap insurance or other extra coverage for your car. Although gap insurance is not required by law, it’s important to check your state car insurance requirements to learn about other necessary coverages for your area.

Step 3: Make a substantial down payment when purchasing a car. When buying a car with bad resale value, it’s essential to make at least a 25% down payment to avoid being upside down in your auto loan.

Step 4: Track your mileage. Driving often decreases the value of a car quickly, so be sure to monitor the mileage to keep your car’s value in check.

Step 5: Get a reasonable loan term. A loan term of 60 months or less will typically help you reach the break-even point faster than a longer loan term.

Step 6: Get the best possible deal on your new car. Research capitalized cost reduction and floor planning to learn how you can get the best price on your new car.

Step 7: Take a driver safety course. Taking a driver safety course or refresher course is an excellent way to learn how to drive your car safely. You can often find courses offered through local driving schools or state departments of motor vehicles.

Step 8: Enjoy your new car!

Step 1: Compare the value of your car with your car loan/lease balance using a website like NADAguides. Calculate the gap between the two.

Step 2: Get gap insurance if you leased your car, took out a long-term car loan of more than 60 months, bought a vehicle with a fast depreciation rate, made little or no down payment, rolled negative equity into your car loan, or traded an upside-down car.

Step 3: Make sure that your gap insurance covers negative equity in case you need to your car loan or lease extended.

Step 4: Take advantage of the best auto loan rates available, as well as other resources such as dealer financing and floor planning.

Step 5: Use an auto loan payment calculator to determine your monthly payments and budget accordingly.

Step 6: Use a reputable website to get the best price on a new car and compare prices from different dealers to get the best deal.

Step 7: Consider reducing your car payment by getting a trade-in or down payment, capitalized cost reduction, or no down payment.

Step 8: Enjoy your new car by driving it around town, taking weekend trips, and immersing yourself in the world of car culture.