Gap insurance is a useful policy option that car owners may add to their coverage when buying new vehicles. It provides a specific protection range that may minimize serious financial loss after an accident. But does gap insurance cover engine failure? This common question requires a deep look into what gap insurance covers and does not cover, as well as a few other policy types that may help. Understanding the answer can help you decide if gap insurance is the right option for you or if another coverage option would suit you better.
What Is Gap Insurance?
Gap insurance is a policy type often purchased early in a new vehicle’s first years of life. During these early years, a car’s value plummets heavily, while the loan value remains the same. Unfortunately, your standard collision or comprehensive insurance policies will pay you the car’s current value after an accident, not its loan value. As a result, people who get into a crash a few years into their loan repayment cycle may owe money on a vehicle that they can’t even drive. Gap insurance covers the difference between these two values up to your policy’s limits.
For example, let’s say you owe $30,000 three years into your repayment cycle. After this time, the vehicle is worth $20,000. If you were to total your vehicle in a crash, your standard collision and comprehensive policies would pay you $20,000 of that vehicle’s value, leaving you with $10,000 in loan debt. A gap policy would cover that $10,000 to pay off your loan to minimize your debt. In this way, gap insurance is a good choice for people buying a new car who want to protect their investment. You may want this policy when:
- Buying a new vehicle for the first time
- Financing your vehicle with a small down payment
- Leasing a vehicle instead of buying
- Creating a 60-month or longer financing plan
You can typically buy a gap insurance policy through your lender, insurance company, or dealership. Some insurance firms may add a gap policy directly to your collision and comprehensive policies. You may pay for your policy on a month-to-month basis or for a large one-time flat fee. Typically, a flat fee covers the first several years of your vehicle’s life, depending on the policy. But does your gap insurance cover mechanical problems like engine failure? After all, engine failure may total your car in some circumstances and make it impossible to drive.
Does Gap Insurance Cover Engine Failure?
While gap insurance is a useful coverage option, it has limitations. Strictly speaking, gap insurance only pays the difference between your loan amount and your car’s current value when your vehicle is a total loss or stolen. It does not cover mechanical breakdowns, such as engine failure or a broken transmission. Even if your engine repair will cost more than the vehicle’s current value, gap insurance doesn’t cover you. Here’s a quick tip for gauging what gap insurance protects: if another insurance type covers an issue, gap insurance is not likely to help you.
Does this mean gap insurance isn’t worth purchasing? Not at all. It is a very useful policy option for people buying a new car. For a fairly low price (often as low as $10 per month), gap coverage may save you thousands of dollars after an accident. You can even remove gap coverage from your policy after paying off your loan, as it serves no purpose at that point. But what type of insurance will protect you if your engine fails? Let’s start by looking at standard insurance policies to see whether they can help you.
Will General Insurance Pay for an Engine Failure?
A typical car insurance policy doesn’t pay for mechanical or engine failures caused by general neglect or poor maintenance habits. That’s because insurance companies consider these failures the driver’s fault because they did not properly maintain the vehicle. The only time you get engine failure coverage is when repairing manufacturer errors. For example, if a faulty part causes your engine to fail despite maintenance, your warranty may cover the repairs. Usually, insurance only pays for engine repairs after an accident, such as when a front-end collision causes engine failure. Policy types that may provide this coverage include:
- Collision. These policies pay for damage to your car after an accident, no matter who was at fault.
- Property damage. Adding this coverage to your insurance pays for any property damage caused during a crash.
- Comprehensive. Comprehensive insurance pays for any damage to your car not caused by an accident, such as a fire.
Note that these policies pay for damage caused by external problems, such as accidents or weather-related incidents. Even a comprehensive policy won’t pay for engine failure. Thankfully, there are policies that may protect you from this problem.
What Insurance Does Cover Engine Failure?
Car warranties typically cover engine failure early in a vehicle’s life. Purchasing an extended warranty can help protect your car’s engine longer than the standard dealer-provided warranty. You may also purchase mechanical breakdown insurance or MBI to protect yourself against engine failure. MBI policies typically become available on new or leased cars younger than 15 months and with less than 15,000 miles. You can renew your policy for up to seven years or 100,000 miles, whichever comes first. These policies typically include a small deductible on a covered loss and pay for all car repairs to mechanical parts after.
This coverage option typically will pay for engine failure, depending on the specific policy. Note that it pays only for mechanical failure and not body damage. After this policy’s coverage period ends, you pay for all mechanical repairs to your vehicle, including engine failure.
Hopefully this article has answered the question “does gap insurance cover engine failure?” for you. You may also want to contact your insurance agent to learn more about what coverage option may suit your needs. They can walk you through the policy shopping process and identify the most suitable option for your financial situation.
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.
