Few things can beat the feeling of getting a new car. From the new car smell to the latest features and technology, getting behind the wheel of a brand new vehicle with all the bells and whistles is thrilling. But it comes with some risks. As soon as the vehicle leaves the dealership lot, its value depreciates, which is why insurers and lenders recommend gap insurance for most new car purchases. Here’s what gap insurance is and how it works.
Gap Insurance Explained
What exactly is gap insurance? It’s an optional insurance coverage many insurance companies offer to cover the difference, or “gap,” between the depreciated value of your new vehicle and the amount of your loan.
If you get into an accident and total your new car but don’t have gap insurance, the insurance company will pay for the current value of the car. You’ll be responsible for covering the difference between what your insurer pays and what you owe the bank. With high vehicle depreciation rates, this can amount to thousands of dollars you’ll owe your lender. If you have gap insurance, however, it will pay off the money you owe.
It’s important to note that gap insurance differs from insurance that covers the cost of replacing your vehicle. When you file a claim with your insurance company after your new car is declared a total loss, the gap insurance payment will go directly to your lender to cover your financial responsibility for the totaled vehicle. New car replacement coverage, on the other hand, goes toward purchasing a new car to replace the one that’s no longer drivable.
Is Gap Insurance Required in Florida?
Gap insurance is not mandated by law in Florida, but your auto lender might require it. Many lease contracts also include this extra insurance. If you buy a new car and put down less than 20% and have chosen a loan that lasts for 60 months or longer, purchasing gap insurance is a good idea. The relatively low cost of gap insurance makes it worth having.
Gap insurance is usually unnecessary for used vehicles because they have already depreciated. The loan you take out for a used car is most likely for the same amount as its value, so your standard insurance coverage will be enough to pay off the entire loan, even if you total the car soon after purchasing it.
How To Buy Gap Insurance In Florida
There are three places to look when you need gap insurance. Most major insurance carriers offer gap insurance in Florida. Many dealerships will also offer gap coverage, or you can get it through your lender. If you’re considering purchasing a new car, do your research before getting it from a dealer or lender. They are usually more expensive than insurance providers. If you add it as an endorsement to your existing auto insurance policy, you will probably save some money.
Most car buyers can expect to pay between $2 and $30 a month for gap insurance, depending on the provider. Once you determine if your carrier provides the coverage, they will add the insurance along with other coverage you need for your new car. You’ll only need the gap insurance for a few years or until you pay down your loan to the point the vehicle is worth more than what you owe.
Which Insurance Companies Offer Gap Insurance In Florida?
Each company has unique requirements for its gap insurance policies. Some companies make it available to all their customers, while others have additional requirements. State Farm, for example, will only sell gap insurance through its auto loan program, and Liberty Mutual only provides it for insured drivers who purchase a vehicle. It’s not available for leases.
Insurance companies that offer gap insurance in Florida include:
- Allstate: Allstate provides gap insurance to the original owners or lessees of a new vehicle.
- Progressive: Progressive offers gap insurance that will stay on your policy as long as you have insurance. When it’s no longer needed, you should call to have it removed.
- Liberty Mutual: Liberty Mutual provides gap insurance to the original owner, and it must be purchased when you buy the vehicle.
- Travelers: Travelers provides gap insurance to the original owner, and it must be purchased from a dealership.
- Nationwide: Gap insurance from Nationwide is an additional coverage as part of your collision policy.
This is not a complete list of gap insurance providers. If you purchase a new car, call your insurance company to see if this coverage is an option.
What Doesn’t Gap Insurance Cover?
Gap insurance covers damage to the insured vehicle. It might also cover theft if your new car is stolen and never recovered. While it protects you from financial loss in the event of a totaled or stolen vehicle, there are certain things it does not cover. These include:
- Deductible costs
- Engine failure
- Bodily injury or death as the result of an accident
Tips for Getting the Right Gap Insurance in Florida
When shopping for gap insurance, the best place to start is with your current insurer. If the company provides it, you’ll most likely get the best rate there. If your provider does not offer gap insurance, look for a stand-alone policy from another insurance company before turning to your lender or the dealership.
Can I Cancel Gap Insurance?
You can cancel gap insurance and should do so as soon as you owe less than the value of the car. In most cases, you’ll have to contact your provider to cancel the policy. Some, however, expire after a certain amount of time. Make sure you understand how your policy works, so you can take the necessary steps to remove it when you no longer need it.
Gap insurance is a good idea for Florida drivers who purchase new cars. It rarely costs much, and it can save you money in the long run. While Florida doesn’t require gap insurance by law, your lender or lessor might require you to purchase it.
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.