As you busily sign and initial your auto loan or lease paperwork, the finance person asks whether you want gap insurance. Gap insurance? Is that some spurious protection for the space between body panels, no more legit than the lifetime blinker fluid warranty? Gap insurance is not only for real, it can be a real lifesaver.
The last thing you want to envision is wrecking your new car. But if it would happen, your car insurance will settle up for the actual cash value. That’s often less than what you owe on it. Gap insurance is guaranteed auto protection, bridging the gap between the two dollar amounts. Though worthwhile for many consumers, it’s not necessary for everyone. Here are some more things to consider.
Will you be upside down? Early in the life of an auto loan, you will probably be “upside down” with the loan balance higher than the car is worth. The issue could be exacerbated if you still owed money on your last car and rolled that balance into the new loan. Gap insurance may not pay every last dollar in an instance like this, but it can significantly lessen the sting should a total loss occur.
Can I pay less upfront? Not everyone can fork over a 20-percent cash down payment on their auto loan. For that matter, it isn’t necessarily a requirement in most cases. But unless a significant upfront outlay is part of the deal, gap insurance could be the answer at least until reasonable equity is built up.
Will this car depreciate quickly? Without even looking at upside-down scenarios or low money down, gap insurance may be helpful. Desirable as certain cars are, they have an ugly little secret of rapid depreciation. It’s a truism with practically every new car, some just excel at it. If you call one of these cars yours, it can take longer to chase down equity. A gap policy, even for a while, offers reassuring protection.
Is it widely available? Many folks never consider gap insurance until it’s offered to them when the deal is signed. Truth is, you can shop around for coverage just like you do your financing and regular car insurance.
Advantage: you. There’s no reason to lump gap insurance in with dealer add-ons of questionable value. To be certain, gap insurance isn’t necessary in every situation, but the peace of mind alone can be worth the few extra dollars each month.