How to Find Out if You Have GAP Insurance
GAP insurance is an inexpensive way to make sure you won't have to keep making payments on a totaled car. To find out if you have GAP insurance coverage, you can check your loan agreement or take a look at your insurance policy. If that doesn't tell you if you're covered, you can reach out to your insurance agent to be sure. GAP insurance covers the remaining amount on your loan or lease if your vehicle is totaled.
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UPDATED: Dec 14, 2021
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- Find out if you have GAP insurance by reaching out to your agent, checking your loan documents, or reviewing your insurance policy
- GAP insurance will make sure that you don’t end up owing payments on a financed vehicle if it gets totaled
- The average cost for GAP insurance is only about $20 a year
Auto insurance policies are cluttered with jargon and terminology that most of us don’t understand. This makes it tough to know what kinds of coverage you have, let alone how it protects you in the event of an accident or an emergency.
GAP auto insurance is a type of optional car insurance that you can acquire when you buy or lease a new vehicle using an auto loan. If your car is totaled or stolen before the loan is paid back fully, GAP insurance will cover the difference between the cash value of the car and the balance of your loan.
Most often, you can check your car insurance policy or the terms of your loan or car lease to check whether you have GAP insurance. However, it’s often overlooked. That’s why we’ve put together this guide to explain the following:
- Where to check to see if you have GAP insurance
- What is GAP insurance?
- What’s covered by GAP insurance?
- Additional special insurance types you may need
If reading through this article makes you think you need to find some different auto insurance, try entering your ZIP code to compare rates near you right now.
Here’s Where You Can Check to See if You Have GAP Insurance
There are three general places where you can check to see if you have GAP insurance as part of your auto insurance policy. They include:
- Your car lease or loan agreement – Sometimes, a car dealer will include GAP insurance as an add-on when lending you a car. You may have also purchased it from the bank or credit union that provided you with the loan. Most often, it’s included automatically and may be easy to miss.
- Your insurance policy – We know it’s not enthralling reading, but you should familiarize yourself with your insurance policy. Reading through the documents will help you better understand your coverage and what it protects. These documents also contain important information such as your deductible and limits on payouts.
- Your insurance agent – While you can take the time to read your policy paperwork, the fastest way to ascertain if you do or don’t have GAP insurance is to call your insurance agent. They should be able to answer any questions you have about your GAP insurance coverage.
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What is GAP Insurance?
GAP is an acronym for Guaranteed Asset Protection. Over time, the loan you take out on your car may be more than the actual cash value of the vehicle due to depreciation.
You’ve probably heard that your car’s value drops the second you drive it out of the lot. While this is an exaggeration, the value of your vehicle will decrease over time, and you may quickly owe more money than the car is worth.
According to the Insurance Information Institute, it’s estimated that the average car depreciates by about 20% the first year.
This is where GAP insurance comes in — it’s supplemental coverage to your comprehensive and collision coverage that can be used if your car is stolen or totaled in an accident. Essentially, it pays the difference between the depreciated value of your car and the amount of money you still owe on your loan.
For example: Let’s say you buy a car and take out a loan for $15,000. You pay your loan monthly to bring down the amount you owe. However, your car is also depreciating at the same time, lowering its cash value. After making payments for a year, you still owe $11,000 on the loan, while the actual cash value of your car is now $8,000.
If you get in an accident and the car is totaled, you would only receive the actual cash value minus your deductible from your insurance company. Therefore, you’d still owe $3,000 and wouldn’t have a car.
Who Needs GAP Insurance and Why?
When you purchase a new car or even a used car that is still relatively new, you’ll probably need GAP insurance — even if you already have full coverage auto insurance. If you lease a vehicle, the cost of GAP insurance is typically built into the lease payments you make.
The reason you’ll need GAP insurance is that your car will depreciate more quickly than you pay down your loan. As such, we’ve outlined a few situations in which it’s recommended that you invest in GAP insurance:
- You paid less than 20% of the price of the vehicle as a down payment
- The car is financed for longer than 60 months
- You still owed money on an older car and rolled it into the new loan
- Your car depreciates faster than other cars, due to the condition or make of the car
- You drive a lot so your car will depreciate faster
GAP insurance may seem like a hassle, but it’s relatively inexpensive and protects you financially if anything happens to your car.
How Much Does GAP Insurance Cost?
Your car insurance rates are based on many factors, including your:
- Where you live
- Type of car you drive
However, on average, GAP insurance only costs about $20 per year. This is a small amount to pay for having some peace of mind. It can also save you from more serious financial problems if you’re stuck with an unusable vehicle that you still owe money on.
How Long do you need to have GAP insurance?
It makes sense to have GAP insurance as long as the value of your car exceeds the remaining balance of the loan you used to purchase it. In other words, you don’t need GAP insurance if your car is worth at least as much as how much you owe your lender.
For example: Let’s say you took out a loan for $20,000 to pay for your new vehicle four years ago and now only owe $4,000, and the car’s actual cash value is $10,000. You could safely cancel the GAP insurance portion of your insurance coverage as the value is more than the amount you still owe.
On the other hand, if you owe $15,000 on a car that’s only worth $10,000, then GAP insurance can help.
When Does GAP Insurance Reimburse You?
It can be stressful to balance the logistics following an accident — and the last thing you want to do is worry about when you’ll receive payment from your car insurance company.
While it varies by insurer, you can typically expect your GAP insurance to pay out within 30 to 45 days of your claim. However, some companies will pay even sooner.
What is Covered by GAP Insurance?
GAP insurance covers the difference between what you owe and the actual cash value. It kicks in to pay this gap if your car is stolen, totaled during an accident, or destroyed by a natural disaster.
If you have questions about your specific coverage, you can contact your agent. Some insurance companies provide GAP insurance that also pays for your deductible so that you don’t have to worry about coming up with additional cash.
What is Not Covered by GAP Insurance?
GAP insurance does not cover everything, including but not limited to:
- Parts added to the vehicle by you — only factory-installed parts are covered
- Loan or lease payments for your vehicle
- Money owed and carried over from a previous vehicle
- Prior damage to the vehicle
- Injuries caused by an accident
- Rental car, following theft or a collision
- Mechanical issues not related to an accident such as engine or transmission failure
GAP insurance also doesn’t kick in if your car isn’t completely totaled or stolen. If the vehicle can be repaired, you’ll have to rely on your general insurance to pay your deductible so that you can fix your car and get back on the road.
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Additional Special Types of Insurance You Should Be Aware Of
Now that you know what gap insurance is, you might be wondering if there are other insurance enhancements you could benefit from. Some common additional types of insurance you can consider include:
- Towing and labor coverage – Towing and labor may be beneficial if you drive long distances frequently. It will pay for the cost of towing your car to a garage. Some insurance companies provide coverage that also pays for tire changing, battery replacement, and lockouts.
- Rental reimbursement – This can be especially useful if you only have one car in your family. Rental reimbursement will cover the cost of a rental car for you to use while your own car is being repaired due to an accident or other covered insurance claim.
- Mechanical breakdown coverage – Mechanical breakdown covers repairs to your vehicle for parts damaged by normal breakdown, not an accident. This can save you a lot of money on repairs since it covers things not protected by your regular insurance.
- Replacement key insurance – In the past, key replacements weren’t a big deal. However, now that most newer cars have coded keys or keyless entry systems, the replacement price is much higher. Some car insurance policies won’t cover the cost to replace a pricey key and recode it to match your car’s computer system. This can leave you with a big bill if you lose or damage your car key. Without insurance, replacement costs can range from $200 to $500 or even higher.
Find the Best Rates for All Your Insurance Needs
GAP insurance can be identified on your lease, loan, or insurance papers, and is incredibly beneficial if your car is stolen or totaled. Searching for car insurance can feel endless, but it doesn’t have to be.
Our free online tool helps you compare coverage and costs, which saves you the time and hassle of calling around.