Image via Flickr by free pictures of money
When financing a car through a lease or a loan, you’ll need to consider your unique insurance options. It’s important to know what insurance coverage is out there, what it covers, how much it costs, and whether the extra coverage is worth that expense. One of those options is gap insurance. If Progressive is your current insurance provider and you plan to upgrade to a new vehicle via lease or loan, you might need to revisit the company’s offerings. Does Progressive offer gap insurance?
What Is Gap Insurance?
Gap insurance is an option you can add to your insurance policy that provides you with additional coverage should your vehicle be damaged. You only need to consider gap insurance if you’re financing your vehicle through a lease or a loan. Gap insurance pays the difference between your vehicle’s value and the balance due on your lease or loan, typically when your vehicle gets totaled in an accident. Your comprehensive or collision insurance pays the actual cash value (ACV) of your vehicle, regardless of how much you owe. Gap will cover the difference, minus your deductible.
For example, suppose you are involved in an accident, and your insurance company considers your car totaled. In that case, your collision insurance will determine your vehicle’s ACV and pay that amount to the lending institution. If your original loan or lease was for $15,000 and you’ve only paid $3,000 of that amount so far, you still owe $12,000. If your insurance company determines the ACV of your vehicle to be $10,000, your gap insurance will pay the difference of $2,000.
Are You Required to Carry Gap Insurance?
Your lender or leasing agent does not require you to carry gap insurance, although they may strongly recommend it to protect their investment. Gap insurance is also not one of the required coverages mandated by your state’s department of motor vehicles, unlike liability insurance, which has state-mandated minimums.
Where Do You Get Gap Insurance?
When financing a vehicle through a dealership, the finance department might offer gap insurance as one of its optional add-ons. You can also purchase gap insurance through a variety of automobile insurance providers. Not all insurance companies offer gap insurance, so if you’re interested in this coverage, ask if the company offers it. You must have comprehensive and collision coverage to add gap insurance to your policy.
Does Progressive Offer Gap Insurance?
Progressive doesn’t offer gap insurance, but it does offer something similar: loan/lease payoff coverage. The difference between loan/lease payoff insurance and gap insurance is that loan/lease payoff coverage maxes at no more than 25% of your vehicle’s ACV. This percentage can vary by state, so ask your Progressive agent what your state’s limit is before adding loan/lease payoff coverage.
When Is it a Good Idea to Carry Gap Insurance?
When purchasing a brand-new vehicle, you might want to consider adding gap insurance to your policy to protect you from the divide between your loan amount and the vehicle’s depreciated value that starts the moment you drive it off the dealership lot.
If you take out a loan on a $30,000 vehicle, drive it off the lot, and get into an accident five weeks later, you might not have even made a car payment yet. You would owe the $30,000 plus interest on the loan, and the vehicle may have depreciated by 10% in that time, which adds another $3,000 you’d owe to cover the lease or loan.
Unless you’re in a financial situation to cover any difference between what you owe on the lease or loan and your vehicle’s ACV, seriously consider adding gap or lease/loan payoff insurance to your policy. It can protect you from going under on a loan and owing money on a vehicle you can no longer drive. Vehicles are expensive, and the last thing you want is to total a vehicle you owe money on and continue to pay for it as you try to purchase another vehicle for your commute.
Other situations that may warrant gap insurance include:
- Purchasing a vehicle with little or no down payment. Without a significant down payment, you might leave the lot upside-down in your vehicle loan, meaning you owe more than what the vehicle is worth. It can take years for the vehicle’s ACV to balance with the amount owed on your auto loan.
- Trading in a vehicle with an existing upside-down loan. While you can secure financing for a different vehicle, the amount owed on your previous vehicle’s loan can be added to your new loan. This extra amount can tip your new loan balance into the upside-down area, leaving you in a lurch if your new vehicle is totaled.
- Purchasing a vehicle with poor resale value. Unless you put more than 25% down on your new vehicle purchase, if it lacks resale value, you might find yourself owing more than the ACV should your insurance company classify the vehicle as totaled.
- Adding miles up on your new vehicle quickly. If you drive a lot for work or family road trips, all those miles can significantly impact the value of your new vehicle. Higher mileage mean higher depreciation, leaving you owing more than the ACV after an accident.
- Taking out a long-term vehicle loan. If your loan for your new vehicle is 60, 72, or even 84 months, it can take longer to reach that break-even point where your vehicle’s ACV matches what you owe on the loan, leaving you with the difference if your vehicle is totaled.
When purchasing a vehicle, get quotes from several insurance providers to compare rates with and without gap or lease/loan payoff insurance. This comparison will help you determine the best value and whether you can afford to add gap or lease/loan payoff insurance. The difference between similar policies can be hundreds of dollars, so taking the time to research what you need and get quotes from reputable providers, including Progressive, is key to saving money.
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.
