What Is Gap Insurance and Who Needs It
Updated: Apr 24, 2019
Gap insurance pays for the difference between the value of a car at the time it’s totaled or stolen and the balance of its loan or lease. Melman Law Group has had numerous clients that totaled their car as a result of a car accident and did not have gap insurance. It is a terrible situation to not be at fault for an accident, and then have to pay the difference of what you owe on your car, versus what its worth the day it was totaled. Though it seems to refer to that difference, “gap” actually stands for “guaranteed asset protection.”
A new vehicle loses some value the minute you drive it off the lot — and 20% to 30% total in the first year. After that, the car’s value will continue to decline. As of 2017, the average rate of depreciation, or lost value, will be 17.8% a year during years two to six, according to Black Book, which tracks used-car pricing.
But standard auto insurance pays only what a car is worth at the time of a theft or accident. When you owe more on your car loan or lease than that, gap insurance comes to the rescue.
How gap insurance works
Gap insurance supplements the payout you get from comprehensive or collision coverage if your car is totaled or stolen. Some gap insurance plans will also cover your insurance deductible. That’s the amount subtracted from the payment for a comprehensive or collision claim.
Gap insurance providers
There are three main ways to buy gap insurance:
From your auto insurer, as part of your regular insurance payment. In a one-time fee through the dealership or lender, which may be rolled into your loan payments. In a one-time fee through a company that sells only gap insurance.
An alternative to gap insurance is called loan/lease payoff. Instead of paying your debt balance, this coverage pays a set percentage of your car’s value, often around 25%, on top of the regular insurance check. Major insurance companies that offer loan/lease payoff include:
How much does gap insurance cost?
Auto insurers typically charge around $20 a year for gap insurance, according to the Insurance Information Institute. You’ll also need to buy comprehensive and collision coverage. Lenders may charge a flat fee of $500 to $700 for gap insurance, according to United Policyholders, a nonprofit consumer group. If you finance the car through a credit union, gap coverage may be less. Either way, if you add the coverage to your loan, that means you’ll also pay interest on it. If you purchase standalone gap insurance online, it’ll typically cost around $200 to $300 one time. Adding gap coverage to an auto insurance policy is typically the best buy. You generally need it just for a few years until the gap between what you owe and what the car is worth closes. Not all car insurance companies provide gap insurance or an equivalent, or offer it in all states.
When gap insurance is worth it
Gap insurance may be worth it if you:
Made a small down payment on a new car, or none at all.
Agreed to a loan term longer than 48 months.
Drive a lot, which reduces a car’s value more quickly.
Lease your car.
Bought a car that depreciates faster than average
MELMAN LAW GROUP
We are experienced attorneys dedicated to using our legal services to fight for victims of car accidents in Roswell, GA. We provide high-quality legal representation to every one of our clients. Every client is treated with personal attention and compassion. We help our clients receive proper compensation.
Many people do not understand the thousands of dollars they leave on the table by not fighting their case properly. We help our clients receive proper compensation for their pain and suffering as well as get the medical treatment they deserve. Our services are on a contingency basis, therefore we do not receive payment unless we win your case. If you choose to work with our team, we will fight to make sure that the person or entity responsible for your injuries is held accountable.
In Georgia, the law allows you only a limited amount of time to file your personal injury claim - meaning it is extremely important to hire an attorney as soon as possible after an accident has occurred. If you need a reliable personal injury attorney in Roswell, GA, contact us right away. We are available 24/7, including holidays, for your free consultation.