Whether you’ve heard of gap insurance or not you may not even be sure what it actually is or what it covers.
In this article, we are going to answer some commonly asked questions regarding what gap insurance is, why you need it, and how much it will cost when purchasing your new car!
What is Gap Insurance?
Gap insurance is an optional add-on coverage designed to help cover the “gap” between the amount you owe on the car and the car’s actual cash value (ACV)in the case of an accident. Here’s the insurance hack. When you go to purchase your new vehicle the car salesperson will typically offer you gap insurance coverage. What they don’t mention, however, is that many insurance policies offer this coverage at a much cheaper price. So, when you’re purchasing your new car just remember that you have the power to turn down the salesperson's offer and save yourself some money.
What Is The Actual Cash Value (ACV)?
We’ve all heard the saying that your new car loses value as soon as you drive it off the lot. In fact, cars depreciate around 20-30% within the first year of ownership. The actual cash value of your vehicle is how much your vehicle is worth at the time of an accident, not when you purchased it. Wondering how ACV is calculated? There are actually many different factors that depreciate the value of your car including mileage, age, physical condition, and many more.
Do I Actually Need GAP Insurance?
If you’re thinking to yourself, “Wait a minute. Isn’t auto insurance supposed to cover damage done to my vehicle?” You’re totally right in being concerned about having the right coverage. We understand that this whole“GAP” thing can be a bit confusing and might seem like it doesn’t make any sense at all! To properly answer this question it is, first, important to understand what basic auto insurance policies are actually designed todo. Your auto insurance is designed to put you back to where you were, in terms of the vehicle, before the loss. Auto claims adjusters, however, do not take into account anything that has to do with your loan when determining how much you will get for your car. They determine what the car is worth, and then they pay you for the vehicle. This is, of course, assuming that you are carrying basic physical damage coverage on the car. Remember, your insurance company is only going to pay for the ACV of the vehicle. The ACV amount is oftentimes less than the financed amount which is why you need GAP insurance!
How Much Does GAP Coverage Cost?
The good news is that this insurance hack can save you money while also protecting you. While the average cost of gap coverage is around $400.00 to $600.00 from the dealer (we’ve heard even higher numbers) the average range on an auto policy is much lower at around $20.00 to $40.00 per year, according to Wallet Hub. Extra coverages and prices are definitely a concern to be worried about but the most important takeaway from this article is to call your agent BEFORE you purchase your new car. There are many ways car salespeople try to upsell you on extra coverages and packages that you either don’t need or are way overpriced. Once you’ve spoken with your agent it’ll be a good feeling to tell the car salesperson who tries to upsell you on gap insurance coverage–“No thanks, I’m going to get that on my auto policy for 40.00 instead!”.
Important Things To Note About GAP Insurance.
Now that you know how GAP insurance works, what it covers, and are considering adding it to your auto insurance policy, let's discuss what this optional add-on does not cover.
•Damage to other property or bodily injuries resulting from a car accident.GAP insurance only covers damage to your vehicle and is not designed to cover damages to property or injuries to another person caused by the accident.
•Your deductible. Unfortunately, gap coverage does not cover your deductible as you will still need to pay it.
•Engine failure or any other mechanical breakdown. Gap insurance does not cover any mechanical repairs on your new vehicle. It only comes into play in the event of a total loss from a covered accident.
There are many other factors that go into GAP Coverage that may or may not apply to you. In fact, gap insurance isn’t available on all insurance policies, although it is on most. Our advice would be to call your agent to learn more about the details of your policy before you go to the dealer.
Is Gap Insurance Worth It?
If you’re thinking about purchasing a new car then let us be the first to tell you that gap insurance is worth it! GAP insurance is just one of many products we can offer you that a large insurance company may overlook, or an auto dealer might overcharge you for. Give us a call if you are considering buying a new car. We are happy to discuss the coverage in more detail and will help determine if you can buy it for the vehicle you are purchasing. Our goal is to build a coverage plan with you, providing you the information to make informed choices. Having that peace of mind in knowing what you are buying is definitely worth the call!