How to determine if gap insurance is right for you
What is gap insurance?
Gap insurance pays for the “gap” between what you owe on your car and what it’s worth if it’s totaled in a covered accident, theft or other loss. Some providers—including Progressive—call it loan/lease payoff coverage.
It’s easy to determine if you need it
A quick comparison between what you owe on your vehicle (info you can get from your lender) and what your vehicle is actually worth will help you determine if gap is for you. (A number of online tools can help you with the latter.)
Do you owe more than the vehicle is currently worth (commonly referred to as being “upside-down” on the loan)?
If so, and if the car were totaled, could you pay the difference between what you owe and what your vehicle’s actually worth today?
If the answer to that second question is no, then buying gap insurance is probably a solid choice.
What does gap insurance cover?
Gap covers the difference between your vehicle’s value and what you owe.
So, let’s say you get into an accident and your insurance company declares the car a total loss. If you have gap insurance, the scenario would play out like this:
$28,000—Amount you owe your lender (principal and interest).
$25,000—Amount your insurance company says your vehicle is currently worth … which the insurance company calls the “actual cash value.”
$3,000—Difference between your loan balance and the insurance value for the car.
$3,000—Additional amount your insurance company will pay if you have gap insurance.
Know that this is a simplified example and other terms could apply. For instance, Progressive’s Loan/Lease Payoff coverage limits the amount we will pay to 25 percent of the actual cash value of your vehicle at the time of the loss. Still, that might easily make the coverage well worth a few extra dollars of premium.
Where do you get it?
You can buy gap insurance a couple of ways: through your car dealer, lender, or your auto insurance company.
The types of losses covered vary depending on the company providing the coverage, so be sure to clarify what’s covered before making your decision. And, be aware that if you’re leasing a vehicle, leasing companies often include gap insurance in their contracts automatically.
The cost can vary, too. While most dealers and lenders offer the coverage, it may be cheaper to buy it through your insurance company. Plus, you get the benefit of having it billed as part of your total insurance premium, and generally speaking, the claims process is smoother as you’re working with just one company and one claims representative in the event of a loss.
A couple more things to note about gap insurance:
- To buy the coverage, your lender must be a financial institution rather than an individual and your policy must have comprehensive and collision for the vehicle.
- To use the coverage, your claim must be covered under comprehensive or collision and your vehicle must be determined a total loss.
To learn more about Progressive’s Loan/Lease Payoff coverage, call us at 1-800-776-4737, or talk to a local agent.