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21 Automobile Gap Insurance Questions Answered About Crucial Car Coverage

Automobile gap insurance companies are clamoring for your business. Do you need this kind of coverage? What exactly does it entail? Where can you get the best deal? The insurance world is filled with jargon and pitfalls. By asking the right questions, you can make sure that you get the policy that is a perfect fit for your needs, without paying a cent more than you need to. Gap automobile insurance companies abound, and it pays to do a bit of research before you make a buying decision. Let's see if we can answer some of your frequently asked questions.

1. What exactly is automobile gap insurance coverage?

So, you have just purchased a shiny new car and are driving out of the lot. As you make your first turn, a car from a side street slams into you. You are all right, but your not-so-new car is a sorry sight. Now, you still owe $30,000 on the vehicle, but your insurance carrier says that the automobile lost 20% of its value the minute you drove away from the dealer. You are left around $6,000 out of pocket, thanks to a no-down-payment loan and a crumpled car. If you had one of the cheap gap deals, you would have been able to take the unfortunate punch with a smile. Your gap partner would have been able to step in at this point by covering the difference between what you owe and what your comprehensive insurance agrees to pay out.

2. How likely am I to need a gap insurance payout?

If you are thinking that the above scenario will never apply to you, think again. Some statistics point to around 5 million vehicles totaled in the USA each year! Can you afford to assume that you will never need this type of shortfall insurance coverage?

3. My car dealership is pressuring me to buy through them. Do I need to do this?

Many car dealers offer this type of insurance on purchases, but the rates are often much higher than you can get elsewhere. You don't have to accept their proposal. It is usually unwise to get caught in a gap deal discussion in the middle of making a car deal. That is not the time to think about it. You are free to ask around for the best quote, but don't delay. It is better to get your facts straight before you head towards the dealer. Many companies offer this service, and you are bound to get an affordable rate somewhere if you shop around.

4. Must I purchase gap car insurance immediately?

No. Depending on the company you choose, you have up to 12 months from the time you purchase the vehicle to get the coverage.

5. Is automobile gap insurance coverage available everywhere?

At the moment, this type of product is only available in certain countries and states, and for certain loan periods. Ask about this when making your enquiries.

6. Is this cover only available on new cars?

Not at all. You can get great deals on used and refinanced cars.

7. Do I really need this over and above my comprehensive insurance?

When making this decision, ask yourself if you can afford the consequences of a major, unforeseen mishap. With the cost of new vehicles as it is, you need the best comprehensive insurance policy you can afford, not necessarily the cheapest. Your deductible can be adjusted as needed to make the premium more affordable. Unless you are extremely comfortable financially, it really isn't sensible to stop here. The one-time fee of auto gap insurance is almost negligible if you consider the implications if you don't have it.

This is even more important if you are financing your vehicle over a long period. Your need for this type of cheap auto insurance also increases if you are looking at a very low down payment. If you can't afford a substantial down payment, how on earth are you going to manage if you have a serious accident without shortfall coverage? Why be in a position of paying off a vehicle that is no longer in service?

8. Do I need ordinary insurance if I have this product?

Yes, you still need your comprehensive coverage. Remember that this is an extra safeguard, covering only the shortfall between your loan value and the actual market value of the car. If you are uninsured, you will only get the difference between the ACV (actual cash value) and the outstanding loan. Some companies don't offer gap insurance, unless you have another primary insurance policy.

9. Are commercial automobiles covered under these policies?

You need to study the stipulations of the policy you are considering carefully to make sure that you are not using the vehicle for a purpose that may void the coverage. Usually 'vehicles for commercial purposes' are specifically excluded. These are livery and delivery vehicles such as taxi cabs, delivery vans, limousines and service vehicles. Check with your insurance carrier broker agent.

10. What documentation do I need to make a claim?

You simply take along a copy of the settlement check of your insurance company, as well as a copy of the police report. The details of the process should be explained clearly in the policy document.

11. How do I know you will still be around when I need the coverage?

It is a good idea to go to companies that have been around for a while. There has to be some history and a solid reputation. A fly-by-night operation may disappear long before you need them. Always check the ratings of the relevant company, before making a commitment. This is especially important if you are considering buying gap insurance online.

12. Can I be forced to buy gap auto insurance?

In most instances, no. Although some financing houses prefer that you have such a policy, it usually isn't a requirement. In most instances it will be the consumer's choice. Financing companies know that your collision coverage only takes care of the current market value of your car, not the outstanding loan value. So, it usually makes it easier for them to get the balance of the payments if you do have this extra insurance. A car lease agreement may require you to be covered - many companies include it in their contracts.

13. Is gap insurance transferable?

No, it can't be transferred to another person, vehicle or a new loan arrangement. If you refinance your car, you will need to get a new policy.

14. Will I only be covered in the case of a total loss?

Yes. This type of coverage has to do with your car being stolen or damaged to such an extent that the repairs will cost more than the actual cash value of the car. This usually includes serious calamities such as fire, earthquake, vandalism, floods, or derailment during transport.

15. Are there any exclusions?

Yes, these are more or less similar to that of ordinary car insurance. Losses due to wear and tear, acts of war, embezzlement or any other criminal act, use of the car in contests, etc. will not be covered.

16. Will it cover my deductible?

This depends on your policy. The best companies cover the deductible up to $500. In this case, this is more or less how the payout will be calculated:

Purchase Of New Car $30,000.00
Loan Balance At Time Of Loss $26,000.00
Actual Cash Value Insurance Settlement At Time Of Loss $21,000.00
Less Your Arranged Deductible $500.00
Settlement Paid By Insurance Company $20,500.00
Automobile Gap Insurance Payment $5,500.00

17. Will I be covered if I buy from a private seller?

Again, this depends on your particular policy. Some companies don't accept private deals. Check with the company before making the purchase.

18. Does a loan with a balloon payment qualify?

No, in most instances you can't get this type of coverage if there is a loan with a balloon payment.

19. Is there an upper limit for coverage?

Yes, in most instances only loans of up to $100,000.00 are covered.

20. Are there any regulations as to interest rates?

Yes, only loans with an interest rate (APR) of 12,5% or less are covered.

21. What sort of deal can I expect? Is gap insurance expensive?

Automobile gap insurance is offered at anything from $399 to $700 for a comprehensive package. This is a one-time payment, not a monthly or yearly cost and gives coverage for the life of the loan. If you consider the repercussions if you are in involved an accident with a fairly new car, it simply doesn't make sense to pass on a good gap deal. If you take into account that financing now allows you to buy a new car with virtually no money down, your financial risk is simply too high if you don't opt for these products. However, you don't have to fall for high end offers. You can get an excellent automobile gap insurance package at almost half the price offered by most dealers.

Isn't the extra 4 to 7 dollars a month over the period of the loan a pittance when you consider the peace of mind it will give you?

Overall, the list of pros seems way longer than the list of cons when it comes to automobile gap insurance coverage.

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