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UPDATED: Jan 9, 2017
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While gap car insurance does offer many benefits to policyholders, one of the downsides is that it cannot be transferred from one car to the next. Gap insurance only applies to the vehicle and sales contract for which it was originally intended.
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Gap coverage also cannot be applied to other things not directly related to the vehicle, such as damage to personal property, bodily injury in an accident, and similar things. Also, gap insurance is not intended to replace state-mandated liability coverage.
How much you will pay for gap insurance really depends on the company providing the policy and what it is they will cover. But it’s usually as straightforward and uncomplicated as car insurance can be.
Most nationally recognized insurance companies provide some sort of gap coverage at a reasonable cost. Regional insurance companies may or may not, so you’ll need to check with yours to be sure.
What is gap car insurance?
When you buy or lease a brand-new vehicle, it loses value the moment you drive it off the lot. Most standard auto policies will only cover the actual cash value of the vehicle should it be totaled in an accident or lost through fire or theft.
The problem arises when the actual cash value is less than what you still owe on the vehicle, which is usually the case for the first few years of the loan.
While there are few states, if any, that require gap car insurance with loans or leases, there are some financial institutions that do require it.
Lenders financing the purchase of a new car need to protect their investment for the life of the loan. Therefore, some will stipulate in the sales contract that gap insurance must be procured and maintained until the car is paid off.
Sometimes gap insurance is not required but the lender will carry his own policy and pass off the cost through higher interest rates or additional fees.
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Do all car insurance companies offer gap insurance?
No, not all car insurance companies offer gap insurance. What’s more, you will find that insurance companies that offer gap insurance in one state may not offer gap insurance in another state.
Because the requirements for certain types of insurance change from state to state, sometimes it is impractical for an insurance company to offer certain types of insurance.
In the case of gap insurance, some companies simply choose not to make an effort in certain states, either due to odd laws regarding gap insurance or due to impractical demands.
Some car companies, and even lenders, offer gap insurance, according to the National Association of Insurance Commissioners. If you can’t find an insurer in your state, you should check with your lender or car company to see if they offer this coverage instead.
What if I sell my car?
If you sell a car with an outstanding loan balance, you will in all likelihood be paying off the loan balance through a new loan or cash payment.
In such a case it’s to your benefit to cancel the gap insurance as soon as possible. If you sell the car to a private owner rather than trading it in, the gap insurance cannot be transferred. It also cannot be transferred to a new vehicle you purchase for yourself.
A lease scenario is somewhat different due to the fact that you never actually own the car.
With a lease, you are procuring gap liability coverage because you are still responsible for the retail value of the car throughout the term of the lease.
When the lease expires, and you return the car to the dealer, the contract is a fulfilled and the gap insurance ends. Should you decide to lease a new vehicle, you’ll need to start over with a brand-new policy.
Will gap insurance cover repairs?
In most cases, gap insurance only kicks in if a car is totaled by the insurance company. If your insurance company decides it would rather repair a damaged vehicle, it is responsible for covering those repairs in full.
However, there are some gap policies that will cover the cost of your deductible. This is especially true if you bundle your gap insurance together with your regular insurance, using the same company.
It’s important to note that gap insurance usually will not extend beyond the point of loan or lease expiration. This is due to the fact that once your loan is paid off there is no longer a financial investment to protect.
If you are still concerned that your regular car insurance coverage will not pay out enough to replace your vehicle at the retail level, you can always add additional coverage to your existing policy to take care of that.
Gap insurance is intended to be a supplemental product to protect car owners in case of the total loss of their car. It’s not intended to be a substitute for normal car insurance, nor can it, from a legal standpoint.
How much does gap insurance cost?
How much gap insurance costs depends on the insurance company that you use to buy your gap insurance, as well as the value of your vehicle. The good news is that, in most cases, it won’t add more than a couple of dollars a month to the total cost of your car insurance.
Is my gap insurance affected by my driving record?
Yes, your gap insurance will be affected by your driving record. Just like with other types of car insurance, if you have a bad driving record, gap insurance providers will consider you to be a higher risk for having a car accident.
If you are a higher risk, then there is a higher chance that the insurance company will have to pay out a claim to you.
The good news is that because this is gap insurance, the insurance doesn’t cover the full cost of a vehicle. This leads to much lower costs, even for those of you with multiple traffic convictions.
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