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UPDATED: Aug 2, 2017
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GAP liability insurance is designed to cover the difference between the actual value of your vehicle and the amount you owe on your vehicle. You may have heard the term GAP insurance before but never thought much about what it is and what it may provide for you in terms of protection.
This protection, however, can be quite valuable to you if you are in an accident that totals your financed vehicle.
In addition, GAP insurance will usually pay your deductibles as well, which means that when all is said and done you will also receive a check from your insurance company to cover the deductibles that they reduced from your initial pay off.
If that seems confusing, maybe this will help to clear things up. Let’s say you purchase a car for $15,000. Once you make your purchase, you will need to purchase auto insurance as well.
You decide to use a $1,000 deductible because it reduces your premiums dramatically. You make monthly payments of $395 a month at 12 percent interest for a four-year loan.
Imagine that a year after you purchase your vehicle you have an auto accident that totals your vehicle, for which you now owe $11,892; but the value of the vehicle is only $9,500. Because you have a deductible of $1,000, you receive a check for $8,500 from your insurance company, leaving you with a debt of $3,392.
This is where GAP insurance makes a big difference for you. GAP insurance pays that difference and saves you from having to continue to make payments on a vehicle that you no longer own.
Read on to learn all about GAP liability insurance policies and then be sure to enter your zip above to start comparing free auto insurance quotes online!
The Cost of GAP Liability Insurance
If you are wondering if GAP insurance is going to make your monthly premiums unmanageable, the answer is usually no. Now, there are a couple of things that come into play in terms of the cost of GAP insurance.
First of all, the value of your vehicle will affect how much you pay for your GAP insurance. A $100,000 car will cost more to insure than a $15,000 car, for obvious reasons.
Another thing that comes into play is how much you owe on the vehicle. If you have a $100,000 car but you put $90,000 down on it then a $10,000 debt is going to be less costly for your GAP insurance premiums than a $15,000 debt.
Yes, this is an unlikely scenario, it is just meant to give you a clear understanding of what might factor into the actual rates that you pay. In most cases, you can expect to pay from $7 to $20 a month extra for your GAP insurance.
This is not excessive, especially considering how much money it could save you if you should get into an accident.
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How to Get GAP Liability Insurance
GAP insurance is sold as a separate policy from your regular insurance policy. Many agents won’t even mention that they offer GAP insurance, so you have to ask for it.
In order to qualify for GAP insurance, you do have to have a financed vehicle and you have to have comprehensive and collision coverage on your vehicle as well.
Once your vehicle is paid off, the GAP insurance is worthless, so don’t pay for that coverage if you pay your vehicle off, make sure that you cancel it.
Even though GAP insurance is sold as a separate policy, you can combine the payments in with your regular insurance payments. This makes it easy for you to pay the bill without having an extra bill to pay each month.
Now, here is the kicker, not every insurance company sells GAP insurance. What’s more, some insurance companies sell GAP insurance in one state but not in another.
Progressive, for example, offers GAP insurance for Florida and Georgia but not for the Carolinas. It is up to you to find out if you can purchase GAP insurance from your insurance carrier.
Because GAP insurance is a separate policy, you can purchase it on its own from any carrier if you aren’t interested in changing carriers for your regular insurance policy. You need to be prepared to pay a bit more if you purchase this policy independently of your current
You need to be prepared to pay a bit more if you purchase this policy independently of your current carrier because you won’t get the discounts that are available when you carry multiple policies with the same company.
Sometimes you can also get GAP insurance from the bank that finances your car loan.
The bank basically rolls the cost of the insurance into the cost of your loan, so if you have a five-year loan and the premium is $400 a year, then an additional $2,000 is rolled into the loan; don’t forget you’ll being paying interest on that loan.
Some banks require GAP insurance on a vehicle if the down payment is very low or if you purchase a vehicle that has a high depreciation rate after you drive it off of the lot. If you get GAP insurance through the lender, you should still receive paperwork that states that the vehicle is covered in full if an accident that totals it occurs.
How to Determine a Need for GAP Insurance
Not everyone will need GAP insurance. There are some lenders that actually agree to dismiss the difference between the value of the vehicle and the amount owed if an accident occurs that totals the vehicle.
There are usually some specific terms for this situation, such as only if the accident occurs after 18 months from the start of the loan, for example. If you have a large down payment and a short loan, like two years, GAP insurance probably won’t be very beneficial, you’ll pay more out than the actual value, in all likelihood.
It is up to you to decide if there is value with GAP insurance in a situation like that.
Regardless of whether you purchase a new or used vehicle, or even if you are leasing a vehicle, GAP insurance can be very beneficial.
If you want GAP insurance but you don’t want to change insurance companies, or if you want to make a complete change in your insurance, our free quote tool is the first step that you should take.
Searching for auto insurance is easy when you use an online quote tool. After answering a few simple questions we can get you quotes from auto insurance carriers in your area that you can compare side to side.
You will see results from companies like State Farm, Progressive, Geico, Allstate, Farmers Insurance and more. You won’t have to visit each of their sites individually in order to know what you will pay for their insurance, which will save you a lot of time while you search for the best insurance.
Saving money is important and the free rate quote tool is designed to show you whether or not you are getting the best rates for your auto insurance. Why not give it a try today?
You have no obligation to buy and you can see if you will save any money in a matter of minutes, just enter your zip code to start!