Gap insurance is an optional add-on coverage that you may have purchased when financing a new or used car.
It covers the difference between what your car insurance pays if your vehicle is totaled or stolen and what you still owe on your auto loan or lease.
Knowing whether you have gap insurance is important to understand how much financial protection you have in the event your vehicle is damaged or lost.
This article provides helpful guidance on determining if gap coverage was included in your auto policy or loan.
Understanding Gap Insurance
Definition and Purpose
Gap insurance, also known as auto loan/lease coverage, guarantees that your auto loan will be paid off by your insurance company if your car is totaled or stolen. Without it, you could be left owing thousands of dollars even after your insurer pays your claim if the car’s value has depreciated below the loan balance. Gap insurance fills this potentially large financial gap between the car’s actual cash value and the remaining loan amount.
Benefits of Gap Insurance
Gap coverage provides valuable financial protection and peace of mind. If your vehicle is totaled, it will pay the difference to settle your loan balance so you are not burdened with continuing payments on a car you no longer own. It protects you from owing more than your insurer’s settlement if the car drops in value faster than the loan principal. Gap insurance can prevent financial hardship and save you money.
How to Determine if You Have Gap Insurance?
There are several ways to find out if gap coverage was included in your auto insurance policy or loan:
1. Checking Your Insurance Policy
Carefully review your auto insurance policy documents to see if a gap or auto loan/lease coverage is listed. This add-on will be marked as an endorsement of your policy. Check your policy’s declarations page and review the full detailed policy for a gap insurance section.
2. Contacting Your Insurance Provider
Call your auto insurer’s customer service line and ask if gap coverage was included with your policy. Provide your name, policy number, and VIN. The agent can access your account information and confirm if gap insurance is documented. They may also be able to send you proof of coverage.
3. Consulting Your Auto Lender
If you financed your car through an auto dealership or bank, call the lender to inquire if gap insurance was included with the loan. They will have records showing if you purchased this optional coverage at the time of sale. Review any auto loan documents for evidence of gap insurance.
4. Reviewing Financial Documents
Check the sales contract, loan agreement, and any insurance letters you received when you purchased the car for mentions of gap coverage. Look for sections detailing add-ons and review the itemized fees. You may find a gap insurance charge listed.
How to Find Gap Insurance?
If it turns out you did not purchase gap coverage, you may still be able to acquire it:
1. Contacting Your Insurer
Most auto insurance companies offer gap policies that complement your existing coverage. Call your insurance provider to inquire about adding this protection to your policy. This may be the easiest and most affordable option.
2. Speaking with Your Dealership
If you financed through the dealership, call to ask if they offer gap coverage. Many allow you to add it to your loan even after purchase. They are familiar with your loan terms and vehicle, so this tends to be a straightforward option.
3. Reviewing Your Lease or Loan Terms
For leased vehicles, your contract may allow you to still enroll in the leasing company’s gap program within a certain timeframe, such as 30 days. Check your lease paperwork for details. Auto loans sometimes have similar provisions.
Do I Need Gap Insurance?
When deciding if you should get gap coverage, consider:
1. Assessing Your Vehicle’s Value
If you are driving a car that depreciates faster than your loan balance decreases, gap insurance can protect you from owing on a vehicle you longer own. High-end luxury cars and new models tend to drop in value quickly.
2. Considering Your Financial Situation
If you have limited emergency savings and would have trouble covering a several thousand dollar gap between your loan and insurance settlement, gap coverage provides financial security.
3. Looking for Alternatives
You may be able to get gap insurance cheaper through your insurance company rather than the auto dealer. Or you can ask your insurer to raise your car’s covered value. Also, consider if you really need a gap policy based on your loan terms and down payment amount.
In summary, gap insurance is an optional add-on coverage that protects you if your vehicle is totaled or stolen and you owe more than it’s worth. Carefully review your auto loan and insurance documents to determine if you have gap coverage or contact your lender and insurer to find out. Consider acquiring gap insurance if you are at risk of being underwater on your loan in a total loss situation.