How to Buy Gap Insurance - Five Point Checklist
By Tara Baukus Mello • Bankrate.com
Car gap insurance can protect you financially if you owe more than your car is worth at the time
it is totaled in a crash or stolen, but not all gap coverage is created equal. Here are five tips when
shopping for car gap coverage.
1. Check with the agent for your current auto policy. Some insurance companies offer car gap
insurance as an add-on to an existing auto insurance policy. Insurers in some states may even
automatically include gap insurance when a customer purchases a new car. Check with your auto
insurance provider to see if you are already covered and if not, if they offer gap coverage.
The advantage to obtaining car gap insurance with the same company as your primary car
insurance is that you will only need to file a single claim in the event your car is a total loss
instead of needing to file two claims - one with your primary insurer and the other with your gap
insurance firm.
Even if your main car insurance company offers car gap insurance as an add-on to your policy, you
should still shop around to ensure you are getting the best rates and coverage you can find.
2. Use caution if buying gap insurance at the dealership. Dealers will usually offer car gap
insurance at the time of your purchase, often rolling it into your monthly car payment. However,
the cost is almost always higher than if you obtained the coverage on your own. While car gap
insurance costs depend on numerous factors, it's often quite inexpensive - less than $100 per
year.
It's typical for dealers to get a kickback for selling car gap insurance, while the cost is passed on
to you. They've been known to even set their own rates based on what you tell them about the
monthly payment you want. Turn down the coverage from the dealer until you can compare it to
other quotes. You can always go back and add it later.
3. Review the term and deductible of the gap insurance policy. You only need car gap insurance
during the period you'll be upside down in your loan. That's typically three or four years for a new
car with very little money down. You'll need coverage for longer if you are rolling the balance of
another car loan into your new loan.
Deductibles on gap insurance can be higher than primary car insurance deductibles, so budget
accordingly, since this deductible is usually paid in addition to the deductible you have on your
primary auto insurance policy.
4. Understand what's covered and excluded. Ask each company you are considering for car gap
insurance to provide you with the details of the policy in writing and review it carefully. Some
gap insurance providers may provide additional coverage beyond the cost gap, such as making
overdue lease or loan payments and paying off a carry-over balance from a previous car that has
been rolled into the current car loan.
It also might reimburse you for the cost of an extended warranty that you purchased at the same
time you bought the car. For lessees, some gap policies may reimburse security deposits and pay
any penalties assessed for excess mileage or wear and tear. Other gap insurance providers may
specifically exclude these types of coverage.
5. Check for the policy's limits. Some car gap insurance policies pay the price difference between
the car's value at the time it was totaled in a crash or stolen and the amount you owe on your
loan, regardless of the size of the gap. Other policies limit the coverage to a specific dollar
amount or percentage, for example 125 percent of the loan balance.
So it's important to understand what your dollars are buying. If you opt for gap coverage with the
limit, keep in mind that the average new car will depreciate about 30 percent in its first year.
Car gap insurance can protect you financially if you owe more than your car is worth at the time
it is totaled in a crash or stolen, but not all gap coverage is created equal. Here are five tips when
shopping for car gap coverage.
1. Check with the agent for your current auto policy. Some insurance companies offer car gap
insurance as an add-on to an existing auto insurance policy. Insurers in some states may even
automatically include gap insurance when a customer purchases a new car. Check with your auto
insurance provider to see if you are already covered and if not, if they offer gap coverage.
The advantage to obtaining car gap insurance with the same company as your primary car
insurance is that you will only need to file a single claim in the event your car is a total loss
instead of needing to file two claims - one with your primary insurer and the other with your gap
insurance firm.
Even if your main car insurance company offers car gap insurance as an add-on to your policy, you
should still shop around to ensure you are getting the best rates and coverage you can find.
2. Use caution if buying gap insurance at the dealership. Dealers will usually offer car gap
insurance at the time of your purchase, often rolling it into your monthly car payment. However,
the cost is almost always higher than if you obtained the coverage on your own. While car gap
insurance costs depend on numerous factors, it's often quite inexpensive - less than $100 per
year.
It's typical for dealers to get a kickback for selling car gap insurance, while the cost is passed on
to you. They've been known to even set their own rates based on what you tell them about the
monthly payment you want. Turn down the coverage from the dealer until you can compare it to
other quotes. You can always go back and add it later.
3. Review the term and deductible of the gap insurance policy. You only need car gap insurance
during the period you'll be upside down in your loan. That's typically three or four years for a new
car with very little money down. You'll need coverage for longer if you are rolling the balance of
another car loan into your new loan.
Deductibles on gap insurance can be higher than primary car insurance deductibles, so budget
accordingly, since this deductible is usually paid in addition to the deductible you have on your
primary auto insurance policy.
4. Understand what's covered and excluded. Ask each company you are considering for car gap
insurance to provide you with the details of the policy in writing and review it carefully. Some
gap insurance providers may provide additional coverage beyond the cost gap, such as making
overdue lease or loan payments and paying off a carry-over balance from a previous car that has
been rolled into the current car loan.
It also might reimburse you for the cost of an extended warranty that you purchased at the same
time you bought the car. For lessees, some gap policies may reimburse security deposits and pay
any penalties assessed for excess mileage or wear and tear. Other gap insurance providers may
specifically exclude these types of coverage.
5. Check for the policy's limits. Some car gap insurance policies pay the price difference between
the car's value at the time it was totaled in a crash or stolen and the amount you owe on your
loan, regardless of the size of the gap. Other policies limit the coverage to a specific dollar
amount or percentage, for example 125 percent of the loan balance.
So it's important to understand what your dollars are buying. If you opt for gap coverage with the
limit, keep in mind that the average new car will depreciate about 30 percent in its first year.
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