Deciding which car insurance andcan be tricky. But whether you To drive legally in your state or grab all the bells and whistles of comprehensive auto insurance, there’s one important type of coverage you shouldn’t skip if you’re : gap insurance. This is why.
New cars begin to depreciate in value the moment your car leaves the lot. If you sell your car, even after you’ve owned it for only a year, the trade-in value is typically as much as 20% less than its original value, according to the Institute of Insurance Information or Triple-I. While supply chain issues in the US are shaking up this calculus (meaning you can now make a profit on a used car in some cases), it’s still an accurate rule of thumb.
That sudden write-off means that if you’re financing or leasing your new vehicle, there may be a time when the amount you owe on the car exceeds the market value of the car itself. For example, you may owe $9,000 on your car loan, but your car’s depreciated value is now only $7,000. In this case, if your car is declared a total loss, you are about to pay more than the car is really worth to cover your car loan.
What about car insurance? While your auto insurance policy would probably kick in if this happened, standard insurance would only pay for the current value of your vehicle, meaning there’s still a sum of money — a gap — that you have to pay. Gap insurance can protect you in this situation.
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What is gap insurance and when do you need it?
Sometimes referred to as loan or lease payout insurance, gap insurance can cover the difference between the market value of your vehicle and the amount you owe on it in the event of an accident where your car is a total loss.
If you’re leasing your vehicle, this coverage is typically required, according to Mark Friedlander, director of corporate communications at Triple-I. But if you’re financing your vehicle, it’s voluntary. So, how do you determine if you should get it?
Here’s a good rule:
“If you’re paying less than 20% on your car and you’re financing the rest — at least 80% — for four or five years or more, that’s a benchmark for gap insurance,” Friedlander said. “In addition, our recommendation is that you buy gap insurance through your car insurer rather than from the car dealer or leasing company. The latter is more expensive.”
However, buying gap insurance through your current auto insurance company can be difficult as not all carriers offer gap insurance. In fact, many major national insurers like:† and do not.
If you’re financing or leasing a new car, here’s a list of major insurers that offer gap insurance.
Allstate is one of the oldest and largest auto insurers in the U.S., founded in 1937 and ranks fourth in total market share in the U.S., according to the National Association of Insurance Commissioners† This insurance giant includes gap insurance in its robust list of coverage options, although this coverage tends to have a more expensive premium compared to other insurers. Although it serves all 50 states and Washington, DC, it does not offer gap insurance in New York.
Progressive offers something similar to gap insurance, called “loan/lease payout insurance.” It works in much the same way as gap insurance, covering the difference between the market value of your vehicle and the amount you owe on it. The main difference is that Progressive’s payout coverage is limited to no more than 25% of your vehicle’s actual cash value, although the limit varies by state. For example, if your car is worth $5,000 and was in an accident and you owe $7,000, Progressive would cover $1,250. Progressive generally offers mid-range fares, which may make it a good option to include in your search if you’re looking for a carrier with gap insurance (or something similar enough).
Amica is another major US insurer that operates in every state except Hawaii. Amica is known for its high customer satisfaction scores, with New England residents noting particularly positive experiences with the carrier’s service. The insurer offers more than just car insurance; it also offers flood, condo, life, home, and small business insurance. If you purchase Gap Insurance from Amica, it will show on your bill as ‘car/loan lease coverage’. This coverage is not available in all states.
Nationwide’s gap coverage costs about 5% of the total cost between both comprehensive and collision on customer policies, according to a Nationwide spokesperson. This airline sells gap coverage in all states except New York, and operates in all states except Alaska, Hawaii and Louisiana. To purchase this coverage, you must apply for it within six months of purchasing or leasing your new vehicle and have both comprehensive and collision coverage. Gap insurance with Nationwide is available until the vehicle turns six years old.
Liberty Mutual, headquartered in Boston, Massachusetts, is another major airline that offers gap insurance. The carrier offers auto, home, and life insurance in all 50 states plus Washington DC, making Liberty Mutual’s coverage one of the most accessible in the entire country. That said, the carrier receives a large number of complaints filed nationally with the National Association of Insurance Commissionersand scores below average in JD Power customer satisfaction surveys†
The Hartford offers a list of auto insurance coverage that includes gap insurance. But this courier is not for all drivers. Hartford’s motoring policy is aimed at drivers over the age of 50 who are members of the American Association of Retired Persons. In addition to gap insurance, Hartford also offers car replacement coverage, which gives you money for a new car of the same make and model if your car is a total loss, rather than paying out the depreciated value of your car.
Frequently Asked Questions
Can you take out shortfall insurance with a company other than your main insurer?
Yes, but it is much more expensive. The other option, if you don’t get it through an insurer, is to buy gap insurance through the lender or dealer you bought the car from. Again, this is more expensive than getting it through your main insurer as a supplement to your policy.
Do I need gap insurance if I have full coverage?
Yes. If you want to insure the gap between the market value of your car and the amount you owe on it, you need gap insurance. Full coverage doesn’t just cover that gap.
Can you add gap insurance to your policy at any time?
No. More often than not, you’ll need to get gap insurance right away or shortly after purchasing your new car. For example, Nationwide requires that you purchase gap insurance within six months of getting a new car.
CNET rates insurance companies and products by comparing them exhaustively against established criteria. For auto insurance, we examine average annual premium rates for full coverage, consumer complaints, body repair scores, carrier financial standing, auto claim satisfaction, and overall customer satisfaction. Our data comes from a multitude of sources.
Car insurance rates come from: bank rate, which collects data using Quadrant Information Services. We also use both annual JD Power surveys that collect data on customer satisfaction with automatic claims and overall customer satisfaction.
Consumer complaints come from the National Association of Insurance Commissioners (NAIC), which collects complaints from consumers across states and indexes complaints on a scale that takes into account the industry average. We collect the financial strength of each carrier from the AM Best Rating. Finally, we collected collision repair scores from the Crash Network Insurer Report Card, which collects data from collision repair professionals, including mechanics, to measure the quality of insurance company’s insurance claim service.
For this list of gap insurance, we’ve confirmed with major insurers the availability of gap insurance and the details of that coverage.
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