Allstate gap insurance is an optional coverage that can help pay off your auto loan if your vehicle is a total loss and you owe more than the vehicle’s market value. You can only get this coverage for new vehicles that you have leased or bought with a loan.
What Are the Benefits of Gap Insurance?
When you lease a new car or buy it with a loan, the company financing the car will likely require both collision and comprehensive coverage on the vehicle until you pay off the loan with them or return the leased vehicle. Gap insurance works with these coverages to make sure that they cover the loan balance without you having to pay a significant amount out of pocket.
Having your car stolen or totaled in an accident will result in the insurance company paying you for the vehicle’s depreciated value under the comprehensive or collision portion of your policy. Unfortunately, many vehicles depreciate rapidly, especially if you put on a lot of mileage. Experiencing a total loss early in the ownership of your vehicle creates a good chance that you’ll owe more on the loan than the car’s value, as determined by your insurance company. In this case, you’d pay the difference since the collateral no longer exists.
Most gap insurance policies will cover any vehicle financed up to $150,000 and reimburse you for your primary coverage deductible up to $1,000. You may pay nothing if your vehicle is stolen or if your insurance deems the car a total loss.
When Should You Consider Gap Insurance?
Gap insurance is not necessary for everybody, yet there are some cases when it makes sense. This may include situations when:
- You put down a small down payment: Gap insurance can prevent out-of-pocket expenses if you owe more on your vehicle than its depreciated value. This typically occurs when you put less than 20% down on your vehicle.
- The value of used vehicles is down: Even with a decent down payment, gap insurance may still save you from paying out a lot of money. If the market value of used cars is down, your vehicle may depreciate more quickly than anticipated.
- You’re a high-mileage driver: The more miles on your vehicle, the lower its value. If you put on a significant number of miles on your car, it may be worth less than you owe.
- Repairs to your vehicle are expensive: If parts for your vehicle are costly, it may not take much damage for the vehicle to be totaled. This can be especially true with luxury vehicles and large SUVs.
How Much Does Allstate Gap Insurance Cost?
Allstate gap insurance is a highly affordable add-on to the policy, which adds roughly $20 every six months. It’s typically better to get your gap insurance through Allstate instead of the dealership, as it is more affordable and you won’t need to pay more interest on a loan that includes the insurance cost. You also will be able to remove the coverage once the depreciated cost of your vehicle is higher than your loan balance.
How Gap Insurance Works
Suppose you purchase a new car at $30,000 and can put $5,000 as a down payment on your loan. After 11 months, you wreck the car, causing damage to the frame and resulting in your insurance company determining the car is a total loss, based on the estimated cost of the repairs.
At that point, you’d be on the hook for your $500 deductible. Not only that, you’d find out that your vehicle’s depreciated value, as estimated by the insurance company, is $20,000 based on the mileage, even though the loan on the car is $21,400. Your insurance company will pay the loan company $20,000 for the loss, and you’ll need to pay the $500 deductible from the collision to your insurance company, as well as $1,400 to the loan company to satisfy the loan. This $1,400 difference is the “gap” for which the insurance is named.
If you have gap coverage through Allstate, it will cover your deductible cost and pay the additional $1,400 to the loan company to satisfy the debt. This means you won’t pay anything out of pocket. This will put you in a better financial position to replace the lost vehicle.
Do You Have To Get Gap Insurance When You Get the Car?
When you purchase gap insurance directly from a dealership, you’ll need to buy it with the vehicle. By getting your gap insurance through Allstate, you’ll pay a lot less and get the coverage when you buy the policy for the vehicle, as long as you are the first and original owner or lessee of the vehicle and the vehicle isn’t older than two or three model years.
Is Gap Insurance Worth the Cost?
Gap insurance from Allstate is highly affordable and costs a fraction of your monthly premium. Without it, depending on the vehicle, you could end up paying thousands of dollars to a loan company for any total-loss accidents within the first couple of years.
You’ll need to ask yourself if you can afford to pay the out-of-pocket extra if you total your car. If this wouldn’t be financially feasible, gap insurance is worth it. You may also want to consider how quickly your vehicle will depreciate. If you put on a lot of miles right away or add any features that don’t increase the vehicle’s value, just the price tag, gap insurance could be worth the cost.
Most dealerships and insurance companies also advise paying for gap insurance if you are paying less than 20% down on your car loan or choose a loan that’s five years or longer. Lessees may also want to consider gap insurance since the monthly payments are lower. If you’re leasing a new vehicle, check to see if your contract already includes gap insurance.
Gap insurance can provide you with peace of mind, knowing that your debts will be covered in the event of a theft or major accident. For an average of $40 annually, Allstate gap insurance is a great option for many buyers.
At FIXD, our mission is to make car ownership as simple, easy, and affordable as possible. Our research team utilizes the latest automotive data and insights to create tools and resources that help drivers get peace of mind and save money over the life of their car.
