Should i gap insurance

However, your lender will generally require you to buy comprehensive and collision coverage. A dealer may automatically include gap insurance if you lease your car, so make sure to check your lease agreement.

If you already bought gap insurance from your dealer and want to buy it from your insurer, you may be able to remove it from your contract.

Make sure you have coverage during the transition if you switch providers. Some of the largest insurance companies that offer stand-alone gap insurance as add-ons to car insurance policies are:.

American Family. Liberty Mutual. Other companies may sell gap insurance or a similar policy as part of a loan or lease. To find the best company for you, compare car insurance rates with at least three insurers. Prices and interest rates will vary, so always check with your dealer and car insurance company to accurately compare costs. Here are other alternatives to consider. This coverage helps pay for a new car of the same make and model, minus your deductible, to replace your vehicle with a new one.

Your insurer may offer better car replacement to cover your loan balance should worse come to worst. Key takeaways:. ZIP Code. Gap insurance covers what's owed on a car after a total loss. What is GAP insurance and how much should you pay for it?

View all new car reviews. Car deals. View all deals. Should you buy GAP insurance? They are: 1. GAP insurance - what should you watch out for? How much should you pay for GAP insurance?

Buying a new car Car finance advice and guides. The concept is the same whether the item financed is a house or a car: The thing financed is currently worth less than the balance of the loan that was taken out to acquire it. This isn't as dire as it sounds.

If you put only a little money down on a purchase and pay the rest in small monthly installments spread over five years or more, you don't immediately own much of that house or car free and clear. As you pay down the principal, your ownership share expands and your debt shrinks. Gap insurance at least covers the shortfall so you're not on the hook if the car is wrecked.

According to the Insurance Information Institute, it may be a good idea to consider buying gap insurance for your new car or truck purchase if you:. In these instances, gap insurance could protect you against potentially negative financial consequences if the vehicle were to be declared a total loss.

If you've purchased gap insurance, check your loan balance from time to time and cancel the insurance once you owe less than the book value of your vehicle. If you're still paying off your car, you almost certainly have collision coverage.

You'd be playing with fire without it, and, in any case, you're probably required to have collision coverage by the terms of your loan or lease agreement. Compare it to your loan balance. If your loan balance is less than your car's value, you no longer have a gap to worry about. Buying a new car is an expensive proposition these days. The average loan term is now 69 months.

You wouldn't dream of skipping collision insurance on that car, even if your lender allowed you to do it. But you may consider gap insurance to supplement your collision insurance for the period of time that you owe more for that car than its actual cash value. That is what your collision insurance policy will pay out if the car is wrecked.

A quick look at a Kelley Blue Book will tell you whether you need gap insurance. Is your car currently worth less than the balance on the loan? If so, you need gap insurance. That said, your cost will vary according to the usual laws of insurance. That is, your state, age, driving record, and the actual model of the vehicle all play a part in pricing.

Going to an insurer for gap coverage is usually cheaper than the two other options, going through the dealer or a lender, according to Bank Rate Monitor. In fact, some are required by state law to offer it. But dealers typically charge substantially more than the major insurance companies.

So, it pays to shop around a bit, starting with your current auto insurer. Many insurers will allow you to add gap insurance to your existing auto insurance policy. Another advantage of going with a big-name carrier is that it's easy to drop the gap coverage once it no longer makes financial sense. Here are some brief answers to the most commonly-asked questions about gap insurance.

If there is any time during which you owe more on your car than it is currently worth, gap insurance can definitely be worth the money. By then, you should owe less on the car than it is worth.

If the car is wrecked, you won't have to pay out-of-pocket to make up the shortfall between the insured value of the car and the amount you owe a lender. Gap insurance is particularly worth it if you take advantage of a dealer's periodic car-buying incentive.

If you're getting a deal for a low down payment and three months "free," you are surely going to be upside-down on that loan for many months to come. Comprehensive auto insurance is full coverage. It includes collision insurance but also covers every unexpected calamity that can destroy a car, from vandalism to a flood. If the sum of cost of repair and salvage value is greater than the ACV, then your car is considered a total loss.

Arizona Arizona uses a total loss formula that says insurance companies can decide if a vehicle is totaled. Massachusetts Under the Massachusetts total loss formula, an auto insurance company decides if a vehicle is totaled. The relatively small cost of gap insurance from an insurer can be worth it if you owe significantly more on your car loan or lease than the vehicle is worth.

In this case, paying for gap insurance may be worth it. Some insurers require you to be the original owner of the vehicle and that the vehicle be fairly new.

You can cancel gap insurance by contacting the insurance company. Jason Metz is a writer who has worked in the insurance industry since He has a B. Select Region. United States. United Kingdom. Jason Metz. Editorial Note: Forbes Advisor may earn a commission on sales made from partner links on this page, but that doesn't affect our editors' opinions or evaluations.

State When is a car totaled? Source: Forbes research. Was this article helpful? Share your feedback.