How does gap insurance work?
Gap insurance stands for Guaranteed Asset Protection insurance. It is an optional, add-on coverage that can help certain drivers cover the “gap” between the financed amount owed on their car and their car’s actual cash value (ACV), in the event of a covered incident where their car is declared a total loss.
Imagine you get mixed up in a bad accident and the damage to your car is extensive. You go to your mechanic and learn that your car is totaled. You have collision insurance, but there’s a problem. Your car is three years old and its actual cash value is only $20,000. Yet you still owe $25,000 in payments on it! You’ve got a financial gap to bridge, and gap insurance will pay it for you (minus your deductible). Contrary to popular belief, gap insurance coverage does not mean that your insurance provider pays you the full amount you originally paid for your car. Having gap insurance means your insurance provider may pay the financed amount you currently owe on your car at the time of a covered accident, minus your deductible. Depending on your circumstances, gap insurance can be a smart addition to your collision insurance policy.
Does gap insurance cover theft?
Having your car stolen can feel a lot like having it totaled. You woke up and had a car, and next thing you know, it was gone. But does that mean your gap insurance will still work the same? It does! If your car is stolen and unrecovered, gap insurance will still pay the difference between your car’s actual cash value and the amount owed for it. Leftover car payments can make a monsoon out of a rainy day. Purchasing gap insurance through Nationwide can help keep you protected.
Do you need gap insurance?
If you're wondering if you need gap insurance, there are a few things you should consider. Gap insurance is a good option for the following types of drivers:
Drivers who owe more on their car loan than the car is worth. If you are currently making car loan payments, be sure to calculate the loan balance and weigh it against your car’s current cash value. (Again, this is different from the amount you paid for the car.) Is there a gap? If so, you should strongly consider gap insurance.
Drivers whose car loan requires gap insurance. Regardless of what you owe on your loan, some loan providers require gap insurance from the outset of your loan.
Drivers whose lease requires gap insurance. Many auto leases require gap insurance as a protective measure. Some lease providers may already include gap insurance in the price of the lease.
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.
How much does gap insurance cost?
If you need gap coverage, you’re likely wondering “how much is gap insurance?” The cost varies depending on a variety of factors including:
- The current actual cash value (ACV) of your car
- Your age
- The state you live in
- Your previous car insurance claims
Bundling gap insurance with your existing policy will usually save you money, with insurers charging an average of $20-$40 per year, however you can purchase it independently for an average rate of $200-$300.1 Gap insurance on a used car may also carry a different cost than gap insurance for a new car, since the cost of the car and its actual cash value both tend to decline with use and age. Keep in mind that once you “close the gap” by owing less on your car than its ACV, you will no longer need gap insurance.
Is gap insurance worth it?
You may still be asking yourself – is gap insurance worth it? It certainly could be in the right circumstances. Gap insurance takes effect in the event of a complete loss of your vehicle, such as theft or a covered accident which renders your car a “total loss.” And although you might be a cautious, responsible driver, not everyone else on the road is. Not having gap insurance if you are “upside down” on your car loan could mean you are reimbursed for thousands less in the event of a complete loss. Are you willing to take a gamble on the gap?
Where to buy gap insurance
You can purchase gap insurance policies at a flat rate from lenders and dealerships, however it’s going to cost you more. Purchasing your policy through an insurance company costs hundreds of dollars less on average.1
“But I already spend enough on my insurance policy, this seems unnecessary. Right?”
Only if you’re absolutely positive your car will never be stolen or totaled as long as you own it! And unless you’ve got a crystal ball, that’s unlikely. Gap insurance can save you thousands of dollars, and on a day that’s already gone very badly. If you’ve just totaled your car or returned to your parking spot to find it missing, the very last thing you’ll want to do is worry about your remaining car payments. Purchase gap insurance through Nationwide and keep yourself protected on your worst days.
Learn more about whether gap insurance is right for you and start a free quote today.