Should I Buy Gap Coverage on my New Car?

Purchasing GAP coverage from a dealer is usually much more expensive than covering it on your auto insurance policy.

If you are purchasing a new car you will likely be offered GAP coverage. GAP provides coverage for the difference between the loan amount and the actual cash value of the vehicle. For example if you purchase a new vehicle for $20,000 and 2 weeks later are involved in an accident, your insurance company will cover the “cash value” of the vehicle. Provided of course that you are carrying physical damage coverage. The “cash value” will be depreciated since the car is no longer “new” and will likely not cover the loan amount especially if you put down a small down-payment. If the cash value is $18,000 the GAP coverage will provide $2000 in coverage.

So it is worth it?  The dealer will likely offer a GAP policy for anywhere between $500 and $1000.

You are much better off to skip the dealers offer and cover it on your auto insurance.

Our 3 preferred companies- Travelers, Safeco and Kemper all offer GAP coverage. It is usually referred to as Loan/Lease Coverage.

It is available for around 5% of the comprehensive and collision premium. That usually works out to less than $25/year. In addition once your loan value drops under the “cash value” you can drop this coverage from your policy.

What about a lease?

A leased vehicle should always have GAP or Loan/Lease coverage. If your vehicle is totaled or stolen you will almost always owe more than the cash value of your vehicle in depreciation

Better than GAP or Loan/Lease…

We also offer Repair/Replace coverage for new vehicles. Repair/Replace goes beyond traditional GAP coverage in that it will provide replacement of your vehicle with “like kind and quality” if you vehicle is totaled and can not be safely repaired in a collision accident.

Comments

5 Responses to “Should I Buy Gap Coverage on my New Car?”

  1. FRED MCDORN says:

    If i buy insurance from you guys and purchase your “gap” ins will i have to pay a deductable? and is the whole amount of neg equity paid on the policy?
    thanks, fred

  2. ryan says:

    Fred generally you would still have your physical damage deductible i.e. comprehensive or collision deductible. And yes most “gap” or “loan lease” coverage would cover any “negative equity”.

  3. Jo Namio says:

    Can I buy an individual GAP policy or does it have to be added to my current car insurance? I just changed to AARP Hartford insurance and I don’t know if they offer it. I would hate to have to change policies again in order to add GAP coverage.

  4. Ryan says:

    Hi Jo,

    It is generally best to add GAP coverage onto your auto insurance policy. There are stand alone policies but those are often $600 or more. Please let me know if I can help.

    - Ryan

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