Guaranteed asset protection — commonly known as gap insurance — is a fairly affordable coverage add-on. It covers the gap between what your car is worth and how much you owe on the loan in the event your vehicle is totaled or stolen.
You could get this coverage for just $50 per year — maybe less. However, you can end up paying significantly more than that if you buy it from the wrong place.
Here we’ll explain why that’s the case and what else you need to know to keep gap insurance costs as low as possible.
- Gap insurance pays the difference between what your car is worth and what you owe on your car loan if your vehicle is stolen or totaled.
- It doesn’t pay to get a new or replacement vehicle. Instead, it ensures that you don’t have to continue payments on a car that is a total loss.
- Gap insurance from your insurance company typically costs $50 to $150 per year.
- Gap insurance offered by auto dealerships is usually much more expensive than gap coverage offered by an insurance company.
- The best way to compare gap insurance quotes is by shopping for a car insurance policy that includes gap coverage.
How much is gap insurance?
How much gap insurance will cost you primarily depends on where you buy it. You have two options: through your insurance company or through the auto dealership where you bought your car.
Buying gap insurance from your insurer typically costs $50 to $150 per year and is included as part of your insurance premium, according to Jimmi Lewis, owner of insurance brokerage Voi Insurance Solutions, in Glendale, Calif., near Los Angeles.
“We always recommend this option, as adding gap insurance to your auto insurance policy will almost always save you at least 50% compared to purchasing at the dealership,” he says.
Factors that affect the cost of gap coverage include the value of your vehicle and the depreciation rate.
A $40,000 Toyota typically sees little depreciation and the cost of gap coverage may be $50 or less per year, Lewis says.
On the other end of the spectrum, a $100,000 Range Rover may cost $150 or more per year for gap coverage due to the high cost and quick rate of depreciation on these vehicles.
Gap insurance is typically only necessary during the first two to three years of financing, Lewis says, “as those first years are typically when your auto loan is upside down, meaning you owe more than the car is worth.”
How much is gap insurance at the dealership?
The finance department at an auto dealership will almost always offer gap coverage, according to Lewis. Usually, they will offer to build the cost into your loan payments. However, it’s usually much more expensive than gap coverage offered by an insurance company.
In fact, some dealerships were found to mark-up gap insurance costs by 300%, according to the most recent research from the National Consumer Law Center, which did a report on add-on services and features at dealerships.
Typically, gap insurance through a dealership is billed as a flat fee. However, because the cost gets rolled into your loan, it could cost even more since you also end up paying interest on it.
How to compare gap insurance quotes
The best way to compare gap insurance quotes is by shopping for a car insurance policy that includes gap coverage as you shop for your new car.
Jimmi LewisOwner of Insurance Brokerage Voi Insurance Solutions
If you already have a policy, Lewis recommends speaking with your insurance broker before purchasing a vehicle.
“They can help provide you with an estimate for both the insurance coverage for the new vehicle, and also the cost of gap insurance.” “This is great data to have before heading to the dealership”, he says.
Still, it’s a good idea to get quotes from multiple insurers — for both the cost of a policy on a new car and gap coverage — in case there’s a better deal out there.
Once you have that initial rate quote in hand, you can start shopping with other car insurance companies for the same types of coverage, limits and deductibles so you are comparing like policies. Now you will know how much to budget for your car payment and insurance, including your gap coverage.
You may also look at who you are financing your car through to see if they offer gap insurance and compare that cost to adding it to your car insurance policy and see which is the best deal.
Lewis also notes that if you are purchasing a used vehicle, gap insurance may not be available through your insurance company. “Each insurance carrier has their own guidelines detailing what vehicles and age ranges they accept,” he says. So again, be sure to check with your insurer or broker first.
Does gap insurance give you money for a new car?
Gap insurance doesn’t pay for you to get a new, replacement vehicle. Instead, it ensures that you don’t have to continue payments on a car that is a total loss.
Gap insurance pays the difference between what your car is worth and what you owe on your car loan if your vehicle is stolen or totaled. Specifically, it pays the difference between the actual cash value of your car at the time of the loss and the amount owed on the vehicle to a lender at the time of an accident or theft.
If you have a new car and are worried about replacing it if it were to get totaled, you can look into new car replacement coverage. This coverage is typically more beneficial to someone who doesn’t owe more than the worth of the vehicle.
New car replacement coverage pays out what it will cost to buy a brand-new car (minus your deductible) of the same make and model as your totaled or stolen vehicle.