09 May What Is Gap Insurance, and Do You Need It for Your New Car?
When purchasing a brand-new vehicle, you’re not just investing in transportation—you’re committing to a significant financial obligation. While most people understand the importance of auto insurance, many may overlook a specific type of coverage that can be incredibly valuable in certain situations: gap insurance. Gap insurance, or Guaranteed Asset Protection, can provide peace of mind in the event of a total loss, especially for those who have financed or leased their vehicle. Here’s an overview of this type of insurance and who should consider it from National Auto Collision Centers.
What Is Gap Insurance?
Gap insurance covers the difference between what you owe on your car loan or lease and the actual cash value (ACV) of the vehicle at the time it’s totaled or stolen. This is important because cars depreciate quickly. A new car can lose up to 20% of its value within the first year and nearly 60% within five years. Standard auto insurance policies only pay out the ACV of the car, not what you paid for it or still owe on it. This can leave a significant “gap” between your insurance settlement and your remaining loan balance. That’s where gap insurance comes in.
Who Should Get Gap Insurance?
So, who really needs gap insurance? It’s especially important if you made a small or no down payment, financed the vehicle over a long period (typically more than 60 months), or leased your vehicle (as most lease agreements require gap insurance). You should also consider whether your vehicle is known to depreciate faster than average or if you rolled over negative equity from a previous loan into your new car loan. In all of these situations, you may owe more than the car is worth for a substantial period of time.
Where Can You Get Gap Insurance?
Gap insurance can usually be purchased through your dealership or directly from your auto insurance provider. While buying it at the dealership may be convenient, it often comes at a higher price and may be rolled into your loan, meaning you’ll pay interest on it. Purchasing it through your insurer is typically cheaper—often as little as $20 per year added to your premium—provided you already carry collision and comprehensive coverage.
Will You Need to Keep Gap Insurance Forever?
It’s important to know that you don’t need gap insurance forever. As you pay down your loan and your car’s value catches up to or exceeds your loan balance, the need for gap coverage diminishes. At that point, you can remove it from your policy to save money.
Gap insurance isn’t necessary for everyone, but it can be a financial lifesaver for the right driver. National Auto Collision Centers works with many insurance companies, which helps car owners have peace of mind after an accident. If you have been in an auto accident and need auto collision repair in Tucson, contact us right away. Our experienced auto body repair service technicians can get you driving again in no time.