Save by Dropping Your GAP Automobile Insurance

Gap Insurance

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I just realized as part of us paying off our car we need to drop our GAP insurance that covered the balance between our actual loan and what our car was worth. Really I should have done this a few months ago, but it just occurred to me. So if you think you owe less than what your vehicle is worth you should look at canceling it.

What is GAP Insurance?

GAP Insurance is to cover your financial misdeed purchasing a vehicle with too little down or rolling negative equity from a previous vehicle into your loan. No I’m not judging because you’ll notice I had GAP insurance because I did both of the for mentioned no-no’s. I like I keep telling you, I’m reformed now! GAP Insurance is to cover the difference between the amount of money you owe on your vehicle and what it’s actually worth. Since a vehicle depreciates so rapidly unless you put a large down payment on the car to combat the nearly 20% drop in value you’ll experience leaving the lot you’ll be underwater immediately on your loan if something happens to your car. Your insurance company will only cover your automobile for it’s actual value. You can get a good idea of your car’s value by going to the Kelley Blue Book Site and finding your car’s retail value. That’s a good estimate for what you’d receive in the event of a vehicle catastrophe.

Do I Have GAP Insurance?

I don’t know do you? Check your policy. If you leased a vehicle with next to nothing down or bought your vehicle through a credit union or other bank they might have required it as a condition of the vehicle purchase. It might not be listed specifically as a GAP rider for instance on my insurance it’s listed as a loan/lease endorsement and will amount to a $30 savings per year. Yes I’m not going to be funding my IRA for the year with that but it’s a completely extraneous charge that a one minute phone call will take remove. If in doubt give your insurance agent or provider a call and get the full picture of what you have setup for your vehicle.

You might have also been sold GAP insurance as part of the financing process from the car dealership. You know when you were being asked about undercoating, clear coating, dash carpeting and snipe detectors? If that’s the case it’s a third party that carry’s that coverage which you may or may not be able to cancel for a refund.

You Might Want to Adjust your Deductible When you Call

While you are talking to your insurance company you might want to consider changing your deductible to lower your rate. If you’ve got a good emergency fund going you can save quite a bit off your yearly premium by bumping it up to say a $1000. Just something to consider moving more towards a self insuring model and keeping more money in your pocket.

Picture Courtesy jonycunha.

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50 Articles To Help You Save On Car Insurance | CarLoans.net
2010/07/28 at 8:03 pm

{ 6 comments… read them below or add one }

Kevin@OutOfYourRut 2010/01/25 at 1:18 pm

I’m thinking that it’s a good thing that I never knew what GAP insurance was. That means I’ve never been upside down on a car.

Not to be outdone, I have other financial sins in my life that are thankfully beyond the scope of this post ;-)

How do you know when you can drop the coverage? Does the lender call you when the loan balance drops below the book value, or are you on your own???
.-= Kevin@OutOfYourRut´s last blog ..Buying vs Renting a Home ““ Its Not All About Money =-.

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paul 2010/01/25 at 1:52 pm

Nope they are not going to call you, this is all on your own and is completely useless once your loan drops below your value. Throwing good money after bad.

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Kevin@OutOfYourRut 2010/01/25 at 2:01 pm

That sounds just like private mortgage insurance (PMI). They’re required to permit you to drop the coverage in as little as two years with certain conditions met, but they won’t call to tell you as much.

Guess we need to stay on top of EVERYTHING!!!
.-= Kevin@OutOfYourRut´s last blog ..Buying vs Renting a Home ““ Its Not All About Money =-.

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Gina 2010/05/07 at 4:19 pm

I had an accident recently which is nit my fault.. The insurance paid market value of my car for 17,000 2008 Hyundai.. I still owed 19,400 and i do have GAP insurance coverage, I thought that for having that extra insurance I will be relieve from a finanacial responsibility to paying off the rest of the money owed from the bank… Well, NO!!! GAP insurance have lots of rules they made, it doesn’t really mean that they will pay the difference… Lotsvof people have money difficulties and troubles sometimes especially a single mother like me but I take care of my bills!!! If you fince your vehicle with no down or finance it more than the vehicle worth they only cover 120% of the original value of your car that u purchased so durin accindent if you purchased a vehicle that worth MSRP 15,000 and your loan is 20,000. They only calculate 120% of the 15,000 the rest you have to pay… Not only that if you deferred payment they will not include that you have to pay it also…if you have late payments you have to pay that.. Just terrible… Now because I did some maintenance in my vehicle before it got into an accident… I ate that bill too… 900 dollars worth of new tires battery and so on… Insurance never paid me… Right now owed 3,000 n whole because of somebody decided to back up on me while I am driving 20 miles an hour…GAP insuranse carriers.. Pleaes explain your what you selling not just use the phrase that you will pay the freaking difference if insurance only pays market value of a vehicle… Misleading and misrepresentation…

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Belmont Thornton 2010/05/25 at 9:27 pm

A really informative and well researched article. The area of GAP insurance though important, is not very discussed subject. Knowing GAP insurance rules before going for it is important to maximize benefits. Thanks for this interesting topic

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Sam P 2011/04/12 at 3:15 pm

I’m really glad you suggested increasing your deductible as a method to save on auto insurance. I feel like a lot of people overlook that fact.

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