At what point is gap insurance worth it?
Asked by: Corbin Langosh DVM | Last update: June 15, 2025Score: 4.4/5 (72 votes)
When should I use my gap insurance?
When your loan amount is more than your vehicle is worth, gap insurance coverage pays the difference. For example, if you owe $25,000 on your loan and your car is only worth $20,000, your gap coverage covers the $5,000 gap, minus your deductible.
Is gap insurance on a vehicle worth it?
You should always take Gap Insurance if buying a new car as it provides protection in case your car is totaled in an accident. It will cover the Gap between what the Insurance will pay for your totaled car and the money you owe to finance company.
When should I decline gap insurance?
You may cancel coverage for several reasons including selling your car or switching to a new gap insurance provider. You might also cancel when your loan balance is less than the car's actual cash value. You may receive a refund for your gap insurance if you've paid for your coverage upfront.
Why do I need gap insurance if I have full coverage?
Gap insurance is meant to cover the difference between what your standard insurance policy would pay out in the event of a claim (market value of the vehicle), versus what you actually owe on the vehicle. Let's look at an example of when this would come into play, even if you already have full coverage.
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Is it bad to not have gap insurance?
Drivers who own their car outright and drivers who owe less on their car than its current actual cash value (as there is not a "gap" in value) do not need gap insurance, but will still need car insurance coverage to help keep them and their car protected from the unexpected.
Will gap insurance pay off my loan?
Keep in mind, gap coverage helps pay off your loan or lease on a totaled car — one that's no longer drivable. But it doesn't pay for a new car. For that, you'd need another optional coverage called replacement protection or new car replacement coverage.
How late is too late for gap insurance?
According to Straughan, most insurance carriers won't allow you to get gap coverage after a car is two or three years old. Comprehensive and collision coverage.
How much down payment to avoid gap insurance?
Gap insurance makes sense for people who put no money down and choose a long payoff period since they may owe more than the car's current value. You may be able to skip gap insurance if you made a down payment of at least 20% on the car when you bought it, or if you're paying off the car loan in less than five years.
What happens if you didn't use gap insurance?
You'll get a refund for the nine months of the year that you didn't use your GAP insurance coverage. Nice! A quick note on refunds from loan payoffs: Once you show your GAP insurance provider your loan payoff notice, you'll receive a partial refund for the GAP coverage that you haven't used.
Why is it bad to have a gap in car insurance?
A lapse in coverage may cause insurance companies to see you as a high-risk driver, even if you have a good driving record. It can also potentially impact your future car insurance premiums. It's best to keep continuous coverage to get the best insurance rate and make sure that you're protected in a car accident.
Can you add gap insurance later?
Can you buy gap insurance at any time? You can typically buy gap coverage for a used car or new car at any time as long as the loan or lease isn't paid off, though some insurance companies may only offer a limited amount of time to purchase coverage.
Is gap insurance ever a good idea?
However, gap insurance makes sense when your auto loan balance is likely to exceed the actual value of the car. This usually happens when: You put little or no money down when you financed your car. Your trade-in vehicle was less than what you owed on that loan, and that amount was added to your new car loan.
How does gap work after total loss?
In the event of a constructive total loss of your vehicle, GAP will, in most cases, cover the difference between: (A) the smaller of the actual or scheduled payoff balance owed under your original financing agreement (net of certain refunds, if applicable), and (B) the value that the auto insurance carrier has placed ...
Does gap insurance always pay the difference?
Some gap insurance policies cover your deductible, while others only pay the difference between what you owe and the car's value. Remember to read the fine print; you might still be out of pocket for the deductible amount, even with gap insurance.
What is a good down payment for a $37,000 car?
A down payment between 10 to 20 percent of the vehicle price is the general recommendation.
Why would gap insurance not pay out?
When Does Gap Insurance Not Pay? GAP does not pay out if the insurance company deems your vehicle a total loss and you do not carry comprehensive and collision coverage. GAP does not include costs beyond the difference between your loan balance and the car's value.
What exactly does gap insurance cover?
GAP is an optional product that is intended to cover the difference between the amount you owe on your auto loan and the amount the insurance company pays if your car is stolen or totaled. Standard auto insurance only pays an amount up to the value of your vehicle.
Does gap insurance give you money for a down payment?
Gap insurance will only cover what is left on your loan after an insurance company pays out. In other words, no, it won't cover the down payment you made initially because it wasn't part of the loan amount.
Will Gap insurance pay if I'm behind on payments?
Gap insurance doesn't cover missed or late payment fees, repossessions, extended warranty costs or car repairs…just loan balances.
Does gap insurance cover break ins?
GAP insurance typically covers the difference between the remaining value of your vehicle loan or lease and your vehicle's actual cash value at the time of the incident. More specifically, GAP insurance will cover that difference in the case of a total loss and theft, but it will not cover deductible costs.
How much money do you get back from gap insurance?
The amount you get back after canceling your gap insurance policy depends on how you paid for the policy. If you paid for your gap insurance upfront, you will get back any unused premium. However, your refund will be much smaller, or there may be no refund at all if you pay for your gap insurance monthly.
Does Gap cover if you are at fault?
Gap insurance covers the difference between your car's actual cash value before the total loss and the amount you still owe on the loan at the time of the loss. That's it. If you're at fault for the accident (or whatever the reason for the loss), your deductible still applies.
What is the most gap insurance will pay?
The most gap insurance will pay is the full amount left on your loan or lease after your insurer pays your vehicle's actual cash value for a covered collision or comprehensive insurance claim. The exact amount gap insurance will pay depends on the balance of your loan or lease and the value of your car.