With a market share of 9.46%, GEICO is the fourth largest auto insurance company in the U.S. It falls below State Farm, Allstate, and Progressive insurance companies. Despite its government-oriented history, GEICO is a private company owned by Berkshire Hathaway Inc. GEICO offers many types of insurance policies, but the most popular is private passenger auto insurance. The company also sells coverage for boats, motorcycles, RVs, and homes; protection against floods; and life insurance.
If you want to buy or lease an expensive vehicle and you’re considering purchasing car insurance through GEICO, you should be aware that GEICO doesn’t sell gap insurance, which might be required by your auto lender. If this is your situation, let’s explore your options.
What Is Gap Insurance?
Guaranteed Asset Protection (GAP) insurance applies to drivers who lease or finance a new car. Most lenders require you to have both comprehensive and collision insurance, but these policies can only compensate you up to the car’s market value.
A new car’s value depreciates faster in the early years. Most vehicles lose about 20% of their original value in the first year alone. If you made a small down payment when buying the car, the principal of your loan might be more than the market value of your vehicle, leaving you in a predicament if your car is totaled or stolen.
If the car is stolen or totaled in an accident, the amount of compensation you receive wouldn’t be enough to pay off the lender. Gap insurance covers the difference between the market value of the car and the amount remaining on your loan, and you only get paid if your insurance company approves your total loss claim. If another driver is at fault, gap insurance will compensate the difference between what that driver’s insurance company pays and your loan.
Does GEICO Offer Gap Insurance?
Image via Pixabay by Hans
Unfortunately, GEICO doesn’t offer gap insurance. You could consider switching to another company, but GEICO offers some of the best rates on the market. The company offers many discounts to eligible drivers as well as great customer service through its website and mobile app. If you like these and other benefits from GEICO, and therefore don’t want to switch providers, you can buy gap insurance from a stand-alone company that specializes in single insurance products.
Where Can You Buy Gap Insurance?
You can buy gap insurance from a car insurance provider or car dealership. However, it’s best to compare rates from different companies when shopping for gap insurance. Buying such a policy from a stand-alone company can be more costly than getting it from your existing insurance provider. Also, dealerships tend to charge more for gap insurance than full-service insurance companies because the gap insurance premium is built into your loan and will therefore accrue interest.
Stand-alone companies that offer gap insurance include EasyCare, AUTOPAY, and GapDirect Insurance. Buying such a policy from a stand-alone company can be more costly than getting it from your existing insurance provider, so when buying gap insurance, you should always contact full-service companies like Progressive, Allstate, State Farm, and Nationwide. No matter which route you choose, compare rates from different companies before making a final decision.
Loan Protection Insurance
If you don’t want to buy gap insurance, then loan protection insurance — or loan/lease payoff — is an alternative. Loan/lease payoff guarantees your auto loan payment when circumstances make it difficult for you to make your payment. This policy can help pay off your loan if the car is totaled or stolen, or when you don’t have an income.
In many cases, an insurance company will either offer gap insurance or loan/lease payoff. Most of them sell gap insurance, but they don’t offer it for used cars. So a loan/lease payoff would be more appropriate if you buy a used car. Also, car buyers usually get gap insurance immediately or within one month of buying a new car. But loan/lease payoff remains available for purchase at any time, even months after you bought your vehicle.
However, the loan/lease payoff only covers up to 25% of the cash value of your car and doesn’t cover deductibles. When deciding whether to buy gap insurance or loan/lease payoff, you should consider the cost, policy availability, and the time-frame in which you must purchase the coverage.
When Do You Need Gap Insurance?
Gap insurance is only available to drivers who buy a new car with a loan. If you make more than a 20% down payment, you may not need this policy. Gap insurance is intended for drivers who put down less than 20% and:
- Have an auto loan with a payment period of 60 months or more
- Have vehicle with a higher depreciation rate than average
- Have a loan with a high rate of interest
If you’ve paid most of the loan and the car’s value is still significantly high, you can cancel the gap insurance.
What’s the Cost of Gap Insurance?
Gap insurance tends to be cheaper than other policies. If you already have comprehensive and collision insurance, you can add gap insurance for as little as $20 per year. The insurance provider will calculate how much you’ll pay based on the terms of your loan and expected vehicle depreciation rate.
Other factors that will determine how much you’ll pay include your location, age, driving record, and car model.
Most insurance providers will charge you 5%-6% of your collision and comprehensive premiums. So if your combined annual premium for comprehensive and collision coverage is $1,000, your gap insurance premium will be $50 to $60.
Your dealership is likely to offer gap insurance once you finance a car. The average price that dealerships charge is between $500 and $700. However, this is a flat rate and not an annual premium.
Gap insurance is only necessary if you lease or finance a car. Even though GEICO doesn’t offer this type of policy, you can buy one from a general insurance company, stand-alone company, or car dealership. You can also buy a loan/lease payoff coverage instead of gap insurance.
You can only receive a payment from gap insurance if your car is totaled or stolen. The compensation you receive will be the difference between the car’s market value and your loan balance.
Even if you’ve bought your car with a loan, you might not need gap insurance. This type of policy only makes sense if you paid less than a 20% down payment and your repayment period is more than five years. If you have already paid most of the loan, it doesn’t make financial sense to have gap insurance, so you should cancel it when it’s no longer necessary.
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.