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Overpaying on car insurance?

Overpaying on car insurance?

Overpaying on car insurance?

Buying GAP Insurance Through the Dealership

gap insurance through dealership
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Buying GAP insurance through a dealership is an option if you owe more on your vehicle than the car’s depreciated value. GAP insurance is optional insurance available through insurance companies and dealerships.

GAP insurance covers the cost difference of what the car is worth and the total amount left on your loan or lease if the car were stolen or deemed a total loss. Without this type of policy, you will be responsible for paying off the balance of the lease or loan in the event that you total your car and owe more on your car than the insurance company will cover.

When GAP Insurance is Worth the Investment

GAP insurance is relatively inexpensive and can save you a significant amount if you owe more on the car than it’s worth. There are some situations where Gap insurance should be considered:

  • You have a small down payment: A smaller down payment means you will have a larger gap between your loan balance and the car’s depreciated value.
  • You choose to lease: Leases are great when looking for a lower monthly payment, but it also means that you are paying less principal down on your car each month.
  • Your financing includes more than your vehicle: If you have dealer-installed additional options on your car, vehicle warranties, or anything else rolled into your financing, your loan to vehicle car probably has a significant gap.
  • You’re a high mileage driver: The average driver puts on between 12,000 and 14,000 miles a year. If you drive more than 15,000 miles per year, your car will depreciate more quickly than the loan principal.
  • Your loan has a long term: Car loans used to be five years or less, but many now are seven-year terms. The longer your loan term, the longer it will take for your loan payments to catch up to the value of your car.

Where Can You Purchase GAP Insurance?

There are three primary places where you can purchase GAP Insurance:

  • The dealership where you purchase your vehicle
  • From your car insurance carrier as an add-on to the policy
  • From an insurance company as a standalone policy

Purchasing GAP Insurance From the Dealership

When you purchase GAP insurance from the dealer, it can run about several hundred dollars, depending on the vehicle’s value. The amount will usually be added to the loan and broken into monthly payments.

There are two main drawbacks to purchasing your GAP insurance direct from the dealership:
  • Since the insurance is in the financing, there will be interest on the amount.
  • You may not be able to cancel once you have enough equity in your car to cover the loan balance.

While there are a couple of issues with purchasing GAP insurance from a dealership, there are some benefits:

  • Versatility with your insurance: When you buy GAP insurance through the dealership, you will be free to move your car insurance policies around with different carriers without a problem. With an insurance company, you may need to complete the GAP insurance term before switching to another provider.
  • No deductible payments: When your GAP insurance is through your insurance company and not the dealership, you will be responsible for paying your deductible.
  • Filing claims won’t affect you: If you make a claim against the GAP insurance you purchase at the dealership, it will not affect your future insurance rates or ability to get insurance as it would through a car insurance company.

Can You Cancel GAP Insurance From a Dealership?

With most dealerships, you can cancel your GAP insurance policy within the first thirty days without penalty. If you wish to cancel past this time frame, you will need to review your contract with the dealership to see if it is possible and what fees you will have to pay. In most cases, you will have to make past payments and interest until the cancellation date.

Is GAP Insurance Required?

While GAP insurance is a good option in many instances with a new vehicle purchase, it is never required by the state. With some leases, GAP insurance may already be factored into your monthly payments, or you may be required to carry it for a certain period.

While requiring GAP insurance is less common with loans, some lenders may require it, especially if you do not have a sizeable down payment. If your lender requires you to have GAP coverage, you will have the option to purchase it from whichever vendor you like.

Things to Consider When Buying GAP Insurance

Since GAP insurance is an added expense, it is important to consider a few things when deciding whether or not purchasing Gap insurance is a good option for you:

  • Consider your financial position: Take a look at your financial position and determine if you would be able to cover the gap if your vehicle is a total loss before the value is even with your loan.
  • Consider your vehicle use: Assess how much mileage you put on your vehicle per year to see if your mileage and use will cause your vehicle to depreciate more quickly or slowly.
  • Consider your vehicle’s age and value: Cars lose value quickly when new, making Gap insurance a good idea. If you are considering Gap insurance for an older vehicle, consider the car’s age and value for the first few years of the loan to see how large of a gap there will be.

In the first years of your loan, or lease, you can expect a new vehicle to lose around 60% of its value. Unfortunately for most people, their loan balance will not drop as quickly. So unless you can put down a significant down payment to narrow the gap between the value of your car and the loan, purchasing GAP insurance can save you a considerable amount of money in the event of a total loss.

While many insurance companies offer GAP insurance, you may find it more convenient and a better choice to purchase your GAP coverage directly from the dealer.

FIXD Research Team

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.

We’re here to help you simplify car care and save, so this post may contain affiliate links to help you do just that. If you click on a link and take action, we may earn a commission. However, the analysis and opinions expressed are our own.

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About the Author

FIXD Research Team

FIXD Research Team

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.

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