When you finance or lease a new vehicle, it’s a good idea (and sometimes even a requirement) to get a Guaranteed Asset Protection policy, also known as GAP insurance. GAP insurance protects you financially from depreciating car values, but if you got through all the paperwork without signing up for GAP insurance, you aren’t alone. Many people forgo GAP insurance and find themselves regretting it. Whether you passed on GAP insurance intentionally or missed out because of an oversight, you’ll be happy to learn it’s possible to add GAP insurance later. You just need to know how.
What Is GAP Insurance?
Most new vehicles begin depreciating in value as soon as you drive them off the dealership’s lot. Unless you pay for your new vehicle in full up front or make a large down payment, the amount you’re paying on said vehicle (whether you’re leasing or financing) will soon be greater than the vehicle’s value according to the insurance company. If your vehicle was to be stolen or totaled when you owed more than it’s worth, you could be on the hook for any remaining financing or lease payments above and beyond what the insurance company pays out for the vehicle. Simply put, GAP insurance covers the difference between what your vehicle is worth and what you owe on it.
Can I Add GAP Insurance at Any Time?
When you finance or lease a vehicle, you typically have the option of purchasing GAP insurance from the dealership or adding it through your regular insurance provider. GAP insurance might even be mandatory under the terms of your lease. However, if GAP insurance was optional, and you chose to skip it, you can add it to your policy later.
You can add GAP insurance at any point before paying off your loan or lease. Start by contacting your existing car insurance provider to learn about current GAP insurance rates and policies.
Keep in mind that the longer you wait, the more limited your options might be. Some insurance companies offer only a limited window of time during which you can add GAP insurance. After two or three years, it can become extremely difficult to find an insurer that will offer GAP coverage. Many insurers will not provide GAP coverage for a pre-owned vehicle, and GAP insurance for new vehicles might come with a hard expiration date.
It’s also worth noting you can only add GAP insurance if you already have comprehensive and collision coverage. You cannot add GAP insurance to liability coverage.
Is GAP Insurance Worth It?
When deciding whether to invest in GAP insurance, consider the following factors:
- Vehicle age. In general, new vehicles lose about 20% of their value in the first year, and by the fifth year, they are often worth half of their initial worth. If your vehicle is more than a few years old, there might not be much difference between its value and your loan balance.
- Make and model. Not all vehicles depreciate at the same rate. Some brands hold their value better than others. Even within the same make, depreciation rates can vary by model or from one year to the next.
- Length of loan term. If you signed a loan with a 72- or 84-month term, odds are good you’ll owe more than your vehicle is worth for at least part of that time. The longer the term, the more likely you are to be upside down on the loan at some point.
- Down payment. A lower down payment leaves you with a higher balance to finance, which makes it easier for vehicle depreciation to outpace your progress toward loan repayment.
- Annual mileage. Wear and tear can affect your vehicle’s value. The more miles you put on your vehicle each year, the faster its value will depreciate.
Once your vehicle’s value is higher than your loan balance, paying for GAP insurance provides no extra protection or benefit. At that point, you can cancel your GAP insurance.
Remember that GAP insurance is a very specific type of coverage that complements your comprehensive, collision, and liability policies. Make sure you fully understand what GAP insurance does and does not cover before deciding whether to add it.
Who Sells GAP Insurance?
You have three basic options when considering GAP insurance:
- Buy from the dealership: Many dealerships will offer to bundle GAP insurance into your vehicle lease or loan. Although this option is convenient, you can only take advantage of it during the buying process. Also, if the price of the insurance is rolled into your vehicle loan, which accrues interest, it can end up costing more than you expect.
- Add it to your existing insurance: Even if the dealership offers GAP insurance directly, it’s worth checking with your usual auto insurance provider. Gap coverage will likely cost less as an add-on to your existing policy.
- Shop for a new insurance provider: If you are outside the window for purchasing GAP insurance from your current provider, don’t be afraid to shop around. Policies and prices vary from one insurer to another. You might even find a better deal on your comprehensive, collision, and liability insurance.
If you do need to change providers, many drivers find Progressive offers the most generous terms and rates for GAP insurance. Liberty Mutual, Travelers, The Hartford, Nationwide, Kemper, and Esurance also rank among the best GAP insurance providers.
You can add GAP insurance days, weeks, or months after signing your vehicle loan paperwork. Not only does it offer important protection if your vehicle is totaled, but it’s also among the most affordable insurance add-ons. Check with your existing vehicle insurance provider first, and if you don’t like the rate, shop around. Several well-established companies offer excellent rates on GAP insurance, making it easy to find a price you can afford.
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.
