How do I know if I have gap insurance?
What is Gap Insurance?
The name says it all: gap insurance covers the gap — aka the difference between what you owe and what your insurance company pays — if your car is stolen or damaged. Generally, comprehensive or collision policies will pay out for a car’s actual cash value (ACV) in the event of an accident, theft, or total loss. You, however, are responsible for paying the difference between the ACV and car insurance deductibles — and that’s when gap insurance comes to the rescue.
Gap insurance is an optional insurance intended for those who lease or finance a new car and owe more on the car than it’s worth at the time of the incident. In short, gap insurance covers the difference between the car loan balance and what your insurance provider pays off after you make a claim. Sometimes the amount you still owe on the car exceeds the actual cash value. This is usually known as negative equity, or being upside-down on your auto loan.
So it’s a good idea to consider buying gap insurance for your new car if you:
- Made less than a 20% down payment
- Financed it for 60 months or more
- Leased the vehicle (in fact, gap insurance is almost always required for a lease)
- Purchased a vehicle that depreciates faster than average (Did you know: a new car depreciates by as much as 30% of its value by the end of the first year of ownership?)
- Rolled over negative equity from an old car loan to this new loan
In this article, we will review gap insurance, why you need it, and how you can purchase it from your insurer at affordable pricing.
Do I Need Gap Insurance?
While having gap insurance can offer you some degree of protection — most notably by allowing you to walk away from an accident or theft with less financial liability — not everyone needs gap insurance. In fact, you’re only eligible if you purchased your car with the help of a loan or if you hold a lease. And even if you are eligible, you don’t have to have gap insurance. Your car, your choice!
That said, if you are thinking about buying gap insurance, you’ll have to show proof of good ol’ fashioned car insurance. This is a prerequisite.
For those who do opt to get gap insurance, the most common reasons are if:
- The amount you owe the lender is more than the current value of your vehicle.
- Your dealership requires it (so then you really have no choice)
More specifically, gap insurance is best for those who:
- Have a long loan term
- Made a small loan payment on your new car, like 20% or less
- Purchased a luxury car with a high depreciation value
- Drive their car more than the average driver (which means the car’s value will deprecate faster, potentially leaving you to pay more)
One important note: once you’ve paid off the loan amount to the point when the car’s value becomes higher than what you owe, you don’t have to keep up your gap insurance. After that point, gap coverage likely won't make any difference if your vehicle is totaled or stolen.
And one final consideration: price. Like any policy, gap insurance offers coverage at a price. Gap coverage marks an additional monthly expense on top of regular maintenance costs and monthly insurance premiums on your auto insurance.
How Do I Know If I Have Gap Insurance?
Turns out you might already have gap insurance and not realize it! It’s particularly important to confirm whether or not you have gap coverage before shopping for a new auto policy, to save yourself both time and money.
How might you already have gap insurance? Well, it’s offered as optional coverage by many car insurance policy providers, and it can also be added on by car dealers.
So if you are unsure whether you already have gap insurance or not, you’ll want to read through your existing auto insurance policy and lease or loan. You can also contact your car insurance provider or the car dealership where you bought the car.
Review Your Current Lease
Your current lease or loan paperwork may include this coverage, so check your lease documents. Some lease agreements include gap insurance as a standard feature without any separate payout. But in most cases, you’ll need to pay extra for the gap coverage if you purchase it through the lease company.
Your lease will detail if you already have gap insurance through your dealership or not. That’s the best way to know for certain if you need to invest in a separate policy.
If it’s not mentioned in the paperwork, you can purchase it anytime after from a car insurance company. When it comes to gap insurance, however, the earlier you buy, the better. In most cases, you should be eligible for gap insurance immediately after buying a new car.
Speak with Your Dealership
If gap insurance is not included in the lease or loan agreement, you should then check with your car dealership to see if it is included through them. Most dealers strongly suggest new vehicle owners buy gap insurance as soon as they purchase a new car.
Your dealership may recommend a trusted provider for gap insurance and can help you get started. As with any policy purchase, make sure to shop around to get the best deal. You may not get discounts on gap insurance, but you can avoid paying higher premiums.
Contact Your Insurance Agency
FYI: car dealers tend to upcharge on gap insurance when you finance a car. And besides, dealerships aren’t the only place to go for gap insurance if you don’t already have it. Often, it’s available through your current car insurance provider, and this is frequently a more budget-friendly option. Plus there’s always door number three: switch auto insurance providers altogether!
We recommend contacting your insurance agent to get all of the info you need to determine the best course of action for you.
Find Quality Gap Insurance with Marble
Since gap coverage is optional (unless required by your dealership) and often supplemental to your existing auto insurance, you don’t need to run out and buy it today. That said, if you do decide to purchase gap insurance, it’s best to do that soon after buying or leasing a car. And of course, we highly recommend shopping around for the best deal.
Marble’s insurance comparison tool lets you view, compare, and shop for high-quality and affordable auto insurance policies, which you can purchase with gap coverage included. Plus, you’ll earn rewards as you manage your insurance policies and browse providers online with Marble. Sign up today to keep your vehicle protected!