Imagine a few months after someone successfully takes a car loan and somehow the car involved in an accident then there will be a lot to worry about but if the car has gap insurance you have nothing to worry about. Also what if nothing happens throughout? so, now is gap insurance worth it now?
We will discuss everything you need to know about it if it is actually worth it for your auto loan.
Now, this is the idea around gap insurance!
When your car got your car major damage maybe through a collision, your car insurance company will come in to pay the value of your car in total loss but not what you actually own on a car loan. What if you now owe more on your car than what it is worth? This is where gap insurance comes in making up the gap.
What is Gap Insurance
Gap insurance can be looked at from these angle as optional or additional auto insurance coverage that bridge the gap for a car owner that his car loan balance is more than the worth of the car at the time of car got totaled.
How Does Gap Insurance Work
Basically, we all know a car is not an asset
This is not time for financial advice anyways, but typically we know that cars depreciate in value and even depreciate more when you use them often.
Now when the car was gotten through an auto loan and you are yet to have equity on the car then the car got stolen or totaled.
Even if the car was insured the insurance company will surely pay for the actual cash value (ACV) of the car at the time of that accident. Then you will be devastated about how will you come up with the balance of the car loan since the car would have devalued at that time.
The Gap Insurance simply covers the gap between the balance of your car loan and the value of your car.
Yes, you can call gap insurance payoff insurance or lease insurance, and it is worth knowing that sometimes it may not be worth it too and that is why we will be giving justice to this question about ‘is gap insurance worth it or not’ in the subheadings of this article.
Who Needs gap insurance?
From a few discussions, we have made so far about Gap insurance it is confirmed that not everybody needs gap insurance.
If your car is financed then you need gap insurance because the insurance company only covers the cash value of the car but if your car is not financed or not on loan then you did not need a gap insurance
Especially if you understand that your car depreciates faster than another vehicle you should try to get a gap insurance
You should not get gap insurance if the amount you own on a car is less than the value of the car.
The list of what gap insurance did not cover
As gap insurance makes sense for auto loan beneficiaries, they still did not cover something like:
- The Extended warranties
- The Security deposit
- A downpayment for a new car
- Penalties for excessive usage
- Late payment of the car loan
Where you Can Get Gap Insurance
There are 3 places you can typically buy gap insurance from which are car dealerships, Car insurance companies, and Banks/credit unions
It’s worth taking note that not all car insurance companies sell gap insurance and some states did not even welcome it. But you can get gap insurance from these auto insurance companies Auto-Owners, state auto, Travelers, Erie, and Nationwide car insurance company
How Much Does A Gap Insurance Cost
Yes, you can find gap insurance for as little as $25 per year but it amount typically varies from insurer to insurer.
You can compare insurer to insurer to know the cheaper in charges. Some might have an identical gap but their charges vary always read through policies thoroughly before signing.
Buying gap insurance from a car dealer will be very easy but cost higher than buying it from an insurance company.
Averagely auto-owners insurance gap costs $48, State auto $52, travelers $34 also Eric cost $58 on average.
Is Gap Insurance Worth It?
Yes, it is worth it if your car depreciates faster and your car cash value is way lesser than its worth whereas you own more on its loan.
If you can confidently afford the gap differences you might conclude on not getting gap insurance.
So check your vehicle’s rate of depreciation and check if the gap is not much and you can afford it if the car gets totaled.