Can I Buy Gap Insurance Anytime?

Find out everything about Gap Insurance below!

Buying auto insurance seems like a great idea, and it sure is. Having an insurance company pay for your losses in case your car gets stolen or damaged works out well for everybody.

But what about gap insurance? What is it and should you buy it? Can you buy it anytime or do you need to follow certain timeline protocols? We have answers to all your questions!

But let’s go on with it slow and steady.

What is Gap Insurance and what does it cover?

Gap insurance is basically the difference you pay between the amount you owe for a car and its actual cash value in case it gets stolen or ‘totaled’.

What is ‘totaled’?

Totaled is when your car gets so badly damaged in an accident that there is no repair to it OR if the repair costs more than the actual amount you purchased it for. So if your car gets totaled, the insurance company pays the difference between the cash value and the actual purchase amount you owe for the car.

Sounds confusing, right?

An Example

Let me explain with a real life example.

Kelly buys a car under her own name for $30,000. But, she owes the financing company around $10,000 worth of additional car payments. Now, if Kelly’s car is completely crushed or ‘totaled’ in an accident, the insurance company will pay her $30,000 because of the auto insurance policy.

But she still owes additional $10,000 worth of payments even though she doesn’t even have a car now. What does she do? Where does she get the $10,000 to pay the finance company?

This is where a Gap Insurance Policy comes into play. If Kelly has a gap insurance policy, the remaining $10,000 will be covered under this.

What does Gap Insurance cover?

The good thing about gap insurance is that it doesn’t focus on how your car is destroyed. No matter if it’s on the road when a drunk driver hit you or your car got ruined in a flood- whatever the case, you have faced a tremendous amount of loss.

But with the gap insurance policy in force, your insurance company is bound to pay you with the gap and provide you with the financial support you need.

Some examples where a gap insurance will look like a good choice to you, if your vehicle was destroyed by:

  • Road accident
  • Vandalism
  • Terrorism
  • Natural hazard
  • Theft

Whatever the case, you really don’t have to worry about the debt and pending loans anymore!

How does Gap Insurance work?

The only reason why people purchase a gap insurance is when they know that the amount owed is more than the actual value of their car. If that isn’t the case with you, you probably don’t even need a gap insurance policy.

But if you do, here’s how it works.

Now that you know what a gap insurance policy is, you’re interested in how it works. Well, there are certain situations why a gap insurance may come in handy for you:

  • If you have paid less than 20% down payment for your car
  • You bought a car with a bad resale value
  • If your loan is of more than 60 months
  • Your vehicle is on lease
  • Your car travel is a lot of miles in a day (more driving agenda will depreciate the value of your car)

Now if you find yourself in any one of these situations above, you might want to opt for gap insurance. Why? Because there are chances that you won’t be able to fill in the gap yourself and you will need financial assistance.

Let’s say your cat gets totaled or stolen, you will be paid the gap amount by your insurance company and you’re free to buy a new car with the actual cash value paid to you. So with very less hassle, you can actually get your hands on a new vehicle in very less time. And buying a gap insurance is actually very cheap, normally it is $20 for an entire year.

How does Gap Insurance Refund work?

A gap insurance refund is simply the remaining amount being given back to you if you pay all your gap insurance dues and premiums before time.

There are many people who have a secure financial condition and are actually able to pay the amount owed of the vehicle during the first few years. This means that they no longer need a gap insurance policy, so the remaining premiums will be refunded back to you since the gap insurance is usually paid for in advance.

But if your gap insurance isn’t paid in advance and you have decided for an installment option, you won’t be entitled to any refund.

Where to buy Gap Insurance?

People usually think buying gap insurance from a car dealer is convenient, but there are specialist firms that will give you better insurance packages. Here are some of those companies, but their packages have certain limitations. Have a look:

Insurer Does it offer gap insurance? Limitations
State Farm Yes Only vehicles financed through State Farm Bank
Progressive Yes Up to 25% of actual cash value (lease/loan coverage)
Allstate Yes New vehicles only
Esurance Yes Up to 25% of actual cash value (lease/loan coverage)
Farmers Yes New vehicles only
Travelers Yes New vehicles only
Nationwide Yes
21st Century Yes Only available in AZ, CO, ID, IA, KY, MT, NM, OR, NE, TN, UT, WA and WI
USAA Yes Only vehicles financed with a USAA auto loan

Note: Sample rates have been extracted online, courtesy of ValuePenguin.

These insurance companies specialize in designing auto insurance policies along with gap insurance. For some people opting for a gap insurance actually sounds like a smart idea ESPECIALLY when the value of your car is way less than the amount owed.

Can you buy gap insurance anytime?

Most people wonder what the best time to go for gap insurance is.

Well, you can buy gap insurance the moment you purchase your car. Why is that? Because if you have a longer plan of repayment (5 years or more), chances are that your car will depreciate faster, which means it will lose it’s value!

It is better if you opt for gap insurance as early as possible to save you from the risk of being a victim of car theft or damage in the near future.

In such a case when your car gets stolen or totaled, the actual value is very less that is paid by the auto insurance company, but if you have gap insurance, you can actually fill in the difference without having to worry about money!

Tony Bennett

Tony Bennett

Tony Benett makes his living in the insurance industry by teaching and consulting. He is also recognized by the legal profession as an expert on insurance coverages. His insurance experience includes having worked at the company level, owned an independent general agency and having worked for an insurance association. He has received various certificates over the past few years and helps his clients and readers by giving them a realistic outlook on what they can expect to achieve within their set targets. At Insurance Noon, he is known for his in-depth analysis and attention to details with accuracy. He has been published as one of the most referred agents by his peers in the insurance community. Tony loves the outdoors and most sport events. His passion other than providing excellent advice is playing golf.