Do You Need Gap Car Insurance?


If you are leasing a vehicle or have little equity in your car then gap car insurance could potentially save you thousands of dollars.

You’ve spent months researching the make and model of the car you want to purchase—the cost, the bells and whistles, the safety features. Maybe you’ve even kicked a few tires. But have you spent any time researching your insurance needs now that you have your shiny new car? Depending on your situation, you may be overlooking what could be an important part of overall coverage—gap insurance.

How gap car insurance works

While cars depreciate at different levels depending on the make and model, in general you lose 20 percent of your new car’s value the minute you drive it off the dealer’s lot. But that doesn’t mean the amount that you owe on the car went down as well.

Gap insurance covers the difference of what you owe on the car and how much the car is worth. What does that mean to you? Potentially thousands of dollars if your car is stolen or totaled during the first few years you own it.

Who should consider purchasing gap car insurance?

If you paid in full for your car, or have a good amount of equity in it, then gap insurance isn’t for you. However, you should consider purchasing gap insurance if you:

  • Lease your car
  • Finance your car for 60 months or more
  • Put less than 20 percent down
  • Roll negative equity from a previous car loan into your new loan
  • Purchase a car that depreciates quickly (such as a luxury vehicle)

How to purchase gap car insurance


The first thing to do is to see if you need to purchase gap insurance at all. Many lease contracts already include gap coverage, and your existing auto insurance policy may agree to pay the “fully financed amount” or provide “full replacement cost.” Be sure to check your existing lease agreement and auto insurance first to determine if these are applicable to you.

It’s important to note that you don’t need to purchase gap insurance from your car dealer—or even at the same time you purchase your car. You can still purchase the insurance up to 12 months after and can obtain it from any licensed agent. (Be aware, however, that if you include gap insurance with your regular auto insurance plan, you will be paying in small installments with your regular payments until you cancel the gap insurance. If purchased from any other source, you will pay a one-time fee.)

What to expect to pay for gap car insurance

As with any other purchase decision, you’ll want to shop around when looking for gap insurance. When reviewing policies, look at the coverage the policy provides as well as the price, as products can vary. In general, gap insurance will cost approximately 6 percent of the premium you currently pay for collision and comprehensive insurance.


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