Should I get GAP insurance on a used car?

FREE Auto Insurance Comparison

 Secured with SHA-256 Encryption

Compare quotes from the top auto insurance companies and save!

Things to remember...
  • GAP insurance covers the difference between a car’s value and what is owed on it at the time of an accident
  • Most cars lose 20 percent of their value in the first year
  • GAP insurance only covers the difference in a car’s value; it will not cover repairs, missed payments, or other expenses

GAP insurance (Guaranteed Asset Protection) is designed to protect your financial interests in the event that you total your vehicle in an accident.

This coverage takes care of the difference between what you actually owe and what your insurance company says is the insurable value.

It can provide you with peace of mind in some cases, but it’s not necessary for every car.

Compare insurance rates and coverage options today by entering your zip code above!

What is GAP insurance?

AdobeStock_55354808-1600x1600

GAP insurance is sold by dealers and some insurance companies. It will cover the “gap” that sometimes exists between what your car is actually worth and what you owe on it at the time of an accident.

It’s typically more affordable when you purchase it through your insurance company, and you can always shop around for a plan that will provide you with better rates in addition to GAP insurance.

GAP insurance is available on new and used cars.

How does this protection work?

Most people today buy new cars with the help of a finance company. Payments are made for a period of years until the car is paid in full.

However, there are times when a driver gets into a serious accident and the insurance company declares the car a total loss.

The insurance company will determine the value of the car and pay that amount.

– The Car is Worth More than the Loan Balance

In the perfect scenario, the value of the car will exceed what the policyholder still owes to the finance company.

The insurance agency will send a check for the balance of the loan to the company, and the remainder of the money will go to the policyholder, so there is no need for GAP insurance.

– The Loan Balance Exceeds the Car’s Value

On the other hand, there are many times when the amount owed on the car actually exceeds what the vehicle is worth. In this case, the insurance company will pay the loan company the value of the car in accordance with the insurance plan.

The difference between that payment and the amount owed on the loan will have to be covered by the policyholder.

When this happens, the policyholder will continue making payments until the loan is paid in full. GAP insurance protects you so that you won’t have to make payments on a car you no longer own.

FREE Auto Insurance Comparison

Compare quotes from the top auto insurance companies and save!

 Secured with SHA-256 Encryption

Understanding How Insurance Companies Determine if a Car is a Total Loss

In general, cars are declared a total loss when the cost to repair it exceeds the actual value. The process is the same whether a car was purchased new or used.

It’s important to note that there are times when the company will total out a vehicle even though the repairs are a little less than the value of the car. You can expect the company to declare a total loss if the repairs are 75 percent or more of the total value.

Once the insurance company determines that the car is a total loss, they’ll let you know what valuation they used to arrive at this decision.

Most insurance companies work off actual cash value, which is the amount you could expect to sell the car for prior to the accident.

Insurance companies determine the fair market value by using tools like NADA valuation system. They also look at the condition of the car prior to the accident and the mileage.

The features you had in the car may play a role, so be sure to notify your company if your car had upgrades that they might not be aware of.

When You Should Look Into GAP Insurance

adobestock_72047239-1600x1600

People are often confused about whether they’ll even need GAP insurance. You certainly don’t want to pay for unnecessary coverage, but these plans can really help you out financially if your car has negative equity.

You should look closely at this option if you:

  • Take out a loan that has an extended term because you’ll require more time to build equity
  • Purchase a brand that depreciates faster than others
  • Purchase the car with anything less than 20 percent down
  • Borrow more than the purchase price by financing negative equity from an old car, extended warranties, tax, license, and other expenses

Buying an Older Car: What to Know About GAP Insurance

Remember that the purpose of GAP insurance is to help out people who owe more on a car than it’s worth. If you’re paying cash for an older car, then there’s no financing note on it to insure.

GAP insurance is absolutely not necessary in this case, but you may want to carry collision and comprehensive coverage to make repairs if you’re in an accident.

The more you drive, the faster your car depreciates. Regardless of how old your used car is, you may want GAP insurance is you’re financing a commuter car that will be driven more than 15,000 miles per year.

Check the value of your car before making the purchase. If you’re getting a great deal and are financing less than 80 percent of the value, then GAP insurance typically won’t be necessary.

Where to Find GAP Insurance

adobestock_33069149-1600x1600

Most dealers offer this coverage at the point of sale, but you can also go through your insurance provider. Before signing with the dealer, call your agent to see if you can get a better rate with the company you already have.

Additionally, you can also shop around to save money on your insurance premium and the GAP insurance.

GAP insurance is a smart investment for people who have negative equity in their cars. It must be purchased from the dealer at the time that you buy your car, or you can tack it on to your regular insurance plan at that time.

If you feel that your insurance company’s fees are too high for this coverage, then use a comparison tool to easily shop around for a better plan.

Compare and save on auto insurance today by entering your zip code into our free tool below!

FREE Auto Insurance Comparison

Compare quotes from the top auto insurance companies and save!

 Secured with SHA-256 Encryption

[0-9]
[0-9]