Lately, I had many conversations about gap insurance. I hope this blog is seen by car buyers, before they buy a car.
Cars depreciate in value.
Depreciation most often happens faster than you can pay off your loan/lease.
For the almost entire lifespan of your loan there is a GAP between vehicles actual value and the amount you owe on the vehicle.
This gap situation might look like this: your car is worth $12,000, but you still owe $15,000. If your car is totaled, insurance company will only pay actual value $12,000, minus applicable deductible. So, you would only get a check for $11,500 (in this example I am using a $500 deductible). You still have to pay off your loan. You have $11,500, but you owe $15,000, you are short $3,500.
Without GAP insurance you would have to come up with $3,500. If you have GAP insurance insurance company would have to send you a check for $15,000 minus applicable deductible.
If you buy GAP insurance from a car dealer, it will cost you around $700-$900. If you buy GAP insurance as an endorsement on your auto policy, it will cost you about $20-$30 a year. You only need GAP coverage for the lifetime of the loan.
So, if you have a loan, having GAP insurance is a must, and having it on your auto insurance policy makes financial sense.