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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{ 3 comments… read them below or add one }
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
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.
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