What is Gap Insurance?
This type of insurance covers the “gap” between how much you owe on your auto loan and how much the car is currently worth if your automobile gets totaled.
For example*, imagine that you purchased a new car and took out a loan for $31,000. Unfortunately, after 2 years, your car is totaled in an accident. Based on your loan, this is how the math would work:
- Your loan balance: $19,800
- Value of your car: $16,000
- Your car insurance deductible: $1,000
- Car insurance payment: $15,000
The gap between the $19,800 you owe and the $15,000 the insurance company pays you is $4,800! You still owe that much money to your lender and you don’t even have the car anymore.
Why would you want Gap insurance?
This type of coverage is a great choice if you think you’ll ever be “upside down” on your car loan or lease, meaning you’ll owe more money than the car will be worth.
If you put little or no money down when financing your vehicle, or if you expect your car to depreciate quickly (ex: excess mileage), you are a great candidate for gap insurance.
How can I save money on Gap Insurance?
You could save several hundred dollars by getting Gap insurance directly through your auto insurance company instead of buying it from a car dealer when you purchase or lease your car.
Dealers often mark up the price of gap insurance, so you end up paying extra money with no additional benefit. Also, many dealers charge a flat rate of several hundred dollars up front for a gap policy, but your insurance company will likely offer the option of monthly payments for comparable coverage.
*These numbers are used as an example only and are hypothetical. Contact us directly for current rate information: visit mvcu.com or call 800-356-0067.