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.