What is Gap Insurance?
GAP insurance is guaranteed asset protection that protects the “gap” in what your car is worth to what the owner owes on the loan or lease in the event that the vehicle is a total loss, or it is stolen. Without this additional insurance coverage, the owner will have to pay the remaining loan or lease amount regardless of the vehicle's condition.
Gap Insurance Highlights:
• Gap insurance will pay out the difference between what the totaled car is worth and what the owner still owes on the loan or lease.
• Gap insurance should be highly considered if a small down payment was applied to the purchase of the vehicle, the vehicle is being leased, or if the value of the vehicle will depreciate quickly.
• Gap insurance can be issued by the car insurance company, loan provider, or dealership you are purchasing the vehicle through.
• Gap insurance can cost anywhere from $400-$700 when purchased through the dealership or $20-$40 per year when purchased through the auto insurance company.
Example of How Gap Insurance Works:
You buy a vehicle for $50,000 and only put down $10,000. Three years later, the car is only worth $20,000, but your loan is still at $24,000. If the car is all of a sudden totaled in an accident or stolen, declaring a total loss, your normal insurance policy will pay out $20,000 (the car's current market value), minus the deductible. If you do not have Gap Insurance, you will still need to pay off the remaining $4,000. If you do have Gap Insurance, it will pay the remaining $4,000.
A “gap” forms when the vehicle depreciates faster than the loan or lease amount is getting paid off. As a rule of thumb, a new vehicle will depreciate 10% in value the moment you drive it off the lot. It will depreciate 20% within the first year of owning it.
Hopefully, this high-level summary of Gap Insurance will keep you from missing another opportunity to add this bank-saving insurance to your next vehicle purchase. Stop by Huntington Beach Mazda today to work with one of our experienced and knowledgeable finance managers. We want to ensure you know about all the benefits associated with your vehicle purchase so you can make the best buying decision for you and your family.