Should You Get Gap Insurance for Your Car?
February 20, 2019
We all know that as soon as you drive your new car off the lot, its value takes a dip. If you took out a loan for the full purchase amount of the car, you will owe more on the loan than what the car is worth, for a period of time. Therefore, if your vehicle is totaled in an accident or stolen, you’d be on the hook for the difference between what your car is worth and what you own on the loan.
With gap insurance (also called loan/lease payoff), it will pay for this difference so you’re not left with a big expense. For example, if you have a $30,000 loan on your car, but your car is only worth $23,000, gap insurance will pay off the balance of your loan minus your deductible. In almost all cases, anytime your vehicle is totaled and your car insurance covers your damages, your gap insurance will also apply. There are very rare occurrences when gap insurance would not apply, so be sure to check your specific policy details.
Should I Get Gap Insurance?
The decision on whether to buy gap insurance depends on your unique situation. Some things to consider are the driving records of those operating the vehicle and how much of a gap exists between your loan and car’s worth. These factors and your risk tolerance are important when making the decision.
Some other factors that may make you a likely candidate for gap insurance are:
- If you’re leasing a vehicle
- Financing for more than 60 months
- Pay very little or nothing for your down payment
- Roll negative equity from a previous vehicle into a new vehicle loan
- Drive more than the average of 15,000 miles a year
- Purchase a vehicle that has a high depreciation rate
With gap insurance being available for about $5 a month on average, it can often be a worthwhile investment, especially for cars driven by new drivers. Talk with your independent insurance agent about what would be best for you and your family.