How Do I Know If I Have Gap Insurance in 2022?
How do I know if I have gap insurance? Gap insurance is a form of insurance that can be very helpful to drivers who have purchased a car with financing, as it provides coverage if the car is destroyed or stolen while the driver is still paying off the loan. If you are a driver who has purchased a vehicle this way, you may be wondering, “How Do I Know If I Have Gap Insurance?” Fortunately, there is a wealth of information available to put your mind at ease.
As you read on, you’ll learn everything you need to know about the ins and outs of gap insurance and find out if you’re protected.
Do you know if you have Gap insurance?
When you first bought your car, you must have gone through a lot of paperwork. Chances are the printout you received at the dealership had a lot of numbers in it and you were more interested in the ones showing how much money you would have to pay for the car each month.
The truth is that without going into details with the dealer, you will not be 100% sure if you have differential insurance. At this point, the only way to be sure is to contact the dealer or your insurer. They will have this information in their records.
How Do I Know If I Have Gap Insurance?
There are two places to check if you already have gap insurance: your existing auto insurance policy and the terms of your lease or loan. Gap coverage is sometimes sold as a dealer add-on when financing a car, so check to see if you’re already paying for it before adding coverage.
Even if you have coverage, it’s worth looking elsewhere for cheaper gap insurance, as car dealers often charge more for it.
What Is Gap Insurance On A Car?
Gap insurance is a supplemental auto policy that covers any difference between the insured value of a vehicle and the loan or lease balance the owner must pay. If your vehicle is totaled or stolen before the loan is paid off, gap insurance will cover any difference between your auto insurance payment and the amount you owe on the vehicle.1
If you are financing the purchase of a vehicle, your lender may require you to purchase differential insurance for certain types of cars, trucks, or SUVs. This especially includes vehicles that can depreciate and lose value faster than normal, such as luxury sedans or SUVs, or certain types of SUVs.
Here’s a basic explanation of how gap insurance works.
Let’s say you bought a car for $35,000. You still owe $30,000 if the car is destroyed in a covered collision. Your collision coverage reimburses you up to the full depreciated value of the vehicle. Let’s say it’s $28,000. If you don’t have gap insurance, you’ll have to pay $2,000 out of pocket. But if you have gap insurance, the insurance company will pay $2,000.
If you’re wondering, “Is gap insurance worth it?” So keep in mind the well-known fact about car appraisal: the moment you drive that car off the forecourt, it immediately starts to depreciate. So even if you have an accident within the first week of purchasing the vehicle, the difference between your loan principal and the car’s current value is likely to be significant.
How does gap insurance work?
It’s pretty easy for a driver to owe the lender or leasing company more than the car is worth in the first few years. A small down payment and a long loan or lease will do the trick, at least until your monthly payments add up to enough equity in the vehicle.
In terms of making claims and vehicle appraisals, equity must be equal to the present value of the car. That value, not the price you paid, is what your regular insurance will pay if the car crashes. The problem is that cars depreciate quickly in the first few years on the road. The average car loses 10% of its value in the first month after purchase.
If your vehicle has an accident, your policy will not cover the cost of replacing the car with a new vehicle. You will receive a check for the sale price of a car similar to yours on a used car lot. Insurers call this the actual cash value of the vehicle.
Gap insurance does not cover that specific gap. Payments are based on actual cash value, not replacement cost, which can help minimize financial losses for you.
What is and is not covered by gap insurance?
Gap insurance can be a beneficial part of your auto insurance coverage, but it only protects you in certain situations. Here’s when gap coverage will (and won’t) protect you:
Does the gap insurance cover theft?
Yes, if you are a victim of car theft, gap coverage will reimburse the difference between your comprehensive coverage and the value of your car.
Does gap insurance cover a car that has been destroyed in an accident?
Yes, in situations where your car has been damaged beyond repair, gap coverage comes in handy.
Does gap insurance cover me if my car is not a total loss?
No, Gap insurance only plays a role if your car cannot be repaired or is unaffordable.
Does the gap insurance cover my deductible?
No, Even if you have gap insurance for your car, you are still responsible for paying the hull or deductible.
Does Gap Insurance Cover Personal Injury or Death?
No, Gap insurance is only relevant for damage to your car and does not cover anything related to medical care, funeral expenses, or lost wages.
When does the Gap insurance not payout?
Gap insurance can offer a solution if you lease or finance your vehicle. You can usually receive a payment within six weeks of a claim. But there is a list of situations where you may not pay, although it depends on the provider, among other things.
You do not receive payment:
- If your primary insurer rejects your claim. That could be due to careless driving or a failed sobriety test in the field.
- If you use the vehicle for commercial purposes, such as driving to school or for private rental
- If you have stopped paying premiums
- If you have already applied for the same gap insurance before
- If there is no “gap” to fill. If there’s no difference between the auto insurance settlement and the original price you paid, your coverage won’t have any difference to make up for.
Keep in mind that the reasons may differ per insurer. For example, GEICO gap insurance has different terms than progressive gap insurance.
If you took out the loan yourself, you may already know the reasons for disqualification. You can also contact the dealer.
Keep in mind that while the term “full coverage” sounds like it covers everything, it doesn’t replicate the work done by gap insurance. So if you want protection against breaches, you have to purchase it separately.
Purchase Gap Insurance
If it turns out you didn’t have differential insurance when you bought the car, the good news is it’s not too late. Depending on the model year of your vehicle, you may still be able to purchase gap insurance. This is something you will probably want to consider as a serious accident with no gap insurance could put you in a deep financial hole.
The easiest and probably the cheapest way is to ask your auto insurance company if they can add gap insurance to your existing policy. Don’t forget to compare prices online to make sure you get the best deal.
Another option is to take out a gap policy with the car dealer. But the price will be higher than what a major insurer offers.
Where can I buy Gap insurance?
A decent comparison site will show you the prices and benefits of different providers such as AAA gap insurance, progressive gap insurance, and others.
Can You Get Gap Insurance After Buying a Vehicle?
Generally yes. It is best to contact your insurer and ask if you can add it to your existing policy.
Can you get gap insurance for a used car?
Keep in mind that if you have a used car, gap insurance is a little less useful because used vehicles don’t depreciate at the same rate as new ones. Yes, you can get it if you want, but if you look at how much it costs per month, you can reasonably decide it’s not worth it.
How long do you have to take out Gap insurance?
There is no hard and fast rule about how long after you buy a vehicle you can get gap insurance. With some insurers, it can take up to three years. But your options and benefits are greater the sooner you buy them. It’s not so much about how long you have to take out gap insurance, it’s about which providers offer a deal that works for me and how long you can wait.
Do I need Gap Insurance?
If you’re wondering whether you need car gap insurance, that’s up to you. You don’t have to buy it; You can drive without it, but ask yourself if you could handle a potential shortfall of thousands of dollars if your car were written off or stolen. Maybe that’s a loss you can handle or at least a risk you can take, but it’s still a conversation you need to have with yourself.
Who Should Get Gap Insurance?
Not all drivers qualify for gap insurance and not all eligible drivers should get it.
Gap insurance is only available if you bought your car with a loan or if you lease your car. If you fully own your vehicle, you don’t need to consider getting gap coverage. Can I Get Car Insurance Without A License?
Even if you financed your car, you only need gap coverage if the amount you owe is more than the value of the car. The best way to determine if you need coverage is to find the cash value of your car and subtract it from the amount you owe.
You can’t find the exact amount your insurance company uses for the actual cash value of your vehicle, but you can approximate your car’s value by visiting a local appraiser or looking it up in Kelley Blue Book.
For example, we found that the Kelley Blue Book value of a 2017 Mini Cooper was around $13,000. If you owe $15,000 on that car, you’ll be underwater and would benefit from covering the holes.
Calculating the difference between the value of your car and what you owe is the best way to know if you need it. You may also be more likely to need gap coverage if any of the following apply to you:
- Your lease or loan agreement requires it: Your lease or finance company may require gap insurance to protect you in the event of a total loss. It’s not because it’s required to be included in your loan or lease, though, and you can find cheaper coverage elsewhere.
- You made a low down payment or opted for a long lease: A low down payment or a longer lease means your car is likely to lose value faster than you pay for it, especially in the early years of ownership.
- You own a high-end or luxury car: Luxury cars depreciate faster than regular cars, so if you’ve bought a Cadillac or Lexus, it’s more likely that your loan amount will decrease the value of the car.
- You drive your car long distances: While any car loses value the moment you take it off the lot, driving a significant amount in a new car decreases the value of the car much faster. The more miles you drive with the car, the less it is worth.
You probably don’t need to have gap insurance forever. Once you’ve paid off the loan to the point where it’s worth more than you owe, you’ll need to remove the gap coverage as long as the terms of your lease allow. If your car is a total loss, having gap insurance will not result in additional benefits.
Is Gap Insurance Worth It?
Gap insurance is worth buying if the cost isn’t significant and you may have to pay a big bill for a car you no longer own. It’s important to do the math and determine how “upside-down” you are on your current car loan. If your loan payment is close to the actual cash value of your vehicle, you may see little or no payment in the event of an accident.
However, if your car is worth significantly less than the money you still owe, gap insurance is well worth the generally low cost.
Many policyholders don’t want to buy additional coverage if they don’t need it. Remember, your “gap” gets smaller as your car depreciates and you continue to pay monthly loans. Use a resource like Kelley Blue Book to find out how much your car is worth.
Conclusion: How Do I Know If I Have Gap Insurance?
How do I know if I have gap insurance? You can tell if you have gap insurance by checking your existing auto insurance policy and the terms of your loan and lease. You have to pay for this insurance until the full amount of your loan is less than the value of your car, which usually takes a few years. If your dealer doesn’t offer a replacement car for a first-year depreciation, you should look into gap insurance options.