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Overpaying on car insurance?

How Long Does Gap Insurance Last?

how long does gap insurance last
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Purchasing GAP insurance is one of the most important and affordable steps you can take to protect yourself from the financial consequences of a vehicle accident. With car loans that often stretch 60 months or longer, though, you may be wondering how long GAP insurance lasts. Here’s what you need to know.

What Is GAP Insurance?

Guaranteed Asset Protection (GAP) is a type of insurance that covers the difference between what your car is worth and what you still owe if your vehicle is totaled in an accident. This is important because your comprehensive or collision insurance policy will only reimburse you for your vehicle’s actual cash value (ACV). If the ACV is not enough to pay off your vehicle loan or lease, then you have to make up the difference. GAP insurance keeps you from having to cover that gap with money from your own pocket.

In the event of a total-loss claim, your GAP insurance will kick in regardless of whose insurance is paying the ACV settlement. However, some insurance companies limit the amount your GAP insurance will pay. For instance, your GAP policy might specify that it will cover no more than 25% of your vehicle’s ACV. It’s important to be aware of the specific terms of your GAP insurance so that you don’t encounter any unpleasant surprises after an accident.

How Long Does GAP Insurance Last?

How long your GAP insurance lasts depends on how you purchase it:

  • At the dealership: If you purchase GAP insurance through the car dealership, it will be bundled into your loan or lease. It will remain active for the entire loan or lease term.
  • From your insurance company: If you purchase GAP insurance as an add-on to your car insurance policy, it will last until you remove it from your policy.

When deciding how to purchase GAP insurance, keep in mind that you may only need it for the first couple of years that you are financing the car for. Once the value of your car meets or exceeds your loan balance, GAP insurance offers no benefit.

Do I Really Need GAP Insurance?

Not everyone needs GAP insurance. If you made a large down payment on a new car and chose a shorter loan term, your car’s ACV may never dip below your loan balance. You don’t need GAP insurance if you paid cash for your vehicle or once the ACV exceeds your loan balance.

However, GAP insurance does make sense for people if any of the following is true:

  • You are leasing your vehicle. Most lease contracts require the lessee to carry GAP insurance.
  • You financed a vehicle for 60 months or longer. An extended term makes it much easier to be upside-down on your loan, at least for the first few years.
  • Your down payment was less than 20 percent. If you made no down payment on your loan or lease, or if the down payment was minimal, then your loan balance will probably be higher than your vehicle’s ACV intially.
  • Your vehicle has a high depreciation rate. Every vehicle depreciates, but some do so more quickly than others. if your vehicle depreciates faster than the average, GAP insurance may be especially important.
  • You rolled an old loan into the new one. If you want to trade in a vehicle with negative equity, the dealership may allow you to roll that loan into your new vehicle loan. That means you will start off owing more than the new vehicle is worth.

If you decide to purchase gap insurance through your regular insurance company, keep track of your loan balance and your vehicle’s ACV. Once the GAP between the ACV and your loan balance disappears, you can save money by canceling GAP insurance you no longer need.

Can I Add GAP Insurance Any Time?

The safest option is to purchase gap insurance at the same time that you buy your vehicle. Once you have signed your loan or lease paperwork, the window for purchasing GAP insurance from the dealership closes. However, you can still purchase gap insurance from an insurance company.

Generally, you can add insurance at any point while your loan or lease is still active. Start by checking with your current insurance provider to learn about their policies and rates. Some companies set a limited window for purchasing GAP insurance. The good news is that if you are outside that window, you can always shop around for a new policy from a company that will provide GAP insurance.

Which Companies Have the Best GAP Insurance Deals?

According to MarketWatch, the average cost of GAP insurance is $40-$60 per year. You may find that your rate is higher or lower than average depending on factors such as your driving history and the depreciation rate for your specific model.

When shopping around, you should consider more than just how much GAP insurance costs. Different providers offer different maximum payouts, discounts, and customer service experiences — all of which may play a part in how satisfied you are with your GAP insurance.

Below are some of the top providers of GAP insurance, based on rates, customer complaints, and terms:

  • Esurance
  • The Hartford
  • Kemper
  • Liberty Mutual
  • Nationwide
  • Progressive
  • Travelers

How Do I Cancel GAP Insurance?

To cancel your GAP insurance, get in touch with your insurance provider and let them know you would like to cancel. Your agent or customer service representative will be able to walk you through the process and let you know what your new premium will be. Some companies may even allow you modify your policy online or in their app.

If you purchased GAP insurance from the dealership, the process may be a little more complicated, since your GAP insurance premiums were probably rolled into your loan or lease. Start by contacting the dealership to see what your options are.

In most cases, you will be eligible for a prorated refund of any prepaid premiums. Some companies may charge a cancellation fee, while others will give you a full refund if you cancel within 30 days.

GAP insurance can be a great investment during the first few years of a vehicle loan, and it can last as long as you need it to. Just be sure to reevaluate your policy periodically so that you don’t end up paying for coverage you no longer need.

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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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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