Gap Car Insurance: Do You Need It?


 Gap Car Insurance: Do You Need It?

You may already know that Gap insurance is a type of car insurance that you buy in addition to basic coverage. It provides protection for a car owner when the cost of repairs or damages is higher than what their insurance company will cover. So, do you need Gap insurance?

In brief, no. You don't need it if the regular amount your car insurer pays for collision coverage exceeds the negotiated wholesale value (blue book) of your vehicle before damages were incurred plus 20%. For this reason, it's often referred to as "excess coverage." The exception is if you have liens on your vehicle and plan to sell the vehicle before repair work incurs more than 80% depreciation.

The theory is that a Gap insurance policy will cover the amount that exceeds your regular insurance coverage. Gap insurance, however, isn't a replacement for or supplement to your basic car insurance contract. You can't use Gap insurance as an alternative to your existing coverage.

So, why would you bother? There are five main reasons:

1. To protect the value of your car from a catastrophic loss (i.e., fire and theft). This is why many people opt for cars with fire and theft protection (like the Honda Civic). It's just a good idea to have some type of coverage on all vehicles.

2. To pay less for your coverage (particularly if you don't want to pay extra for a basic car insurance contract that offers collision coverage). A Gap insurance policy may cost as much as 4% or 5% of the value of your vehicle. If you don't have the money to purchase additional insurance, but still want some protection, buying Gap insurance may be a good way to go. You'll only pay for what is actually lost or stolen: no more, no less and no more than the amount of regular car insurance you have with your current insurer.

3. To compare car insurance quotes with Gap insurance. A good car insurance company will offer a price without Gap coverage, but will charge you extra for it. The same applies to Gap coverage: you can compare rates on an "uninsured" basis with and without Gap coverage.

4. To provide additional protection during the vehicle's depreciation period. Some vehicles lose value faster after they're damaged or stolen, so Gap insurance can help make sure that your vehicle returns to its original value before it has been repaired or replaced. For example, if you have a one-year old car worth $15,000, but it's stolen and you only receive $10,000 for the vehicle at the insurer's auction, your vehicle may only be worth $10,500 with Gap insurance.

5. To help cover losses when the costs of repairs or replacements exceed your vehicle's value after deductibles are applied (which is reason #1 listed above). This is another reason why Gap insurance exists: it helps to ensure that car owners have enough resources to repair and replace their vehicles when they are damaged or stolen.

Gap insurance options vary by company and state laws (even though it's not required). Some offer Gap coverage on a "cost-plus basis," where the insurance company pays the claim, not the policyholder. Others offer Gap coverage on a "policyholder's option basis," where the policyholder decides if they want to purchase Gap insurance.

The average cost of Gap insurance is about 2% of your car's value, but it can be as high 5% or more. For example, in Texas, it's 4%, and in Arizona it's up to 8%. Your insurance company will generally reimburse you for this portion of your claim out of their basic collision coverage. If so, you don't need to buy additional Gap coverage.

Gap insurance doesn't cover:

- The deductible under your basic insurance contract. If you have to pay $500 for a $350 deductible, you'll still have to pay the $500 when your claim is paid.

- When your car is hit by another driver (including on a public street) or stolen from either private land or from a parking lot. In these instances, you'll need additional collision coverage. Most states require this amount to be at least 10% of the value of your car, with some states requiring as much as 20% coverage -- which is why it's so important that you make sure you know what your state requires in terms of basic liability coverage.

- The costs of damages incurred by occupants inside the car (i.e., passengers and the driver). If someone is seriously injured in an accident, you can be held liable for medical expenses and other kinds of injury claims. In some cases, the passengers personal injury lawyer will sue you after they've filed a claim against your insurance company. Even if you have car insurance, it's always a good idea to purchase additional health insurance (that covers car accidents) or an umbrella policy that includes personal liability coverage.

- The costs of damages incurred by adjacent property owners (i.e., those who live next door to you). These property owners will sue you for damages to their property caused by your car. If you live in an apartment, this can happen if your car causes a garage door to slam multiple times or the dumpster at the end of your driveway tips over.

- When a vehicle is stolen and driven away from where it was stolen (i.e., within 50 miles of the theft). If someone steals your car and drives it across the border, you'll need additional coverage for theft and injury claims involving vehicles stolen from within 50 miles of your location.

- The cost of any repairs that are needed to fix damage caused by your car after a collision and before another repair has been made or purchased. In some cases, this won't apply if you have a mechanical breakdown that causes damage to your car and then you have to get your car towed or towed to the garage.

It's important that you read your Gap insurance policy carefully to determine if and how it applies in all of these situations. If you have a question about whether Gap coverage applies, call your agent directly. You can also contact the insurance company (usually by phone) directly for clarification on how your policy operates in a specific situation.

Remember: only buy Gap insurance if you really need it in order to replace (or repair) your vehicle after it is damaged or stolen.


If you have a vehicle that is worth less than the amount of your collision coverage, you may want to consider Gap insurance. If you don't own a car or already have enough liability coverage, then Gap insurance isn't necessary.

Most people who do not buy Gap coverage have no problem getting by with their standard collision insurance coverages and limits -- as long as they don't exceed them. Some states require that drivers have a certain amount of liability coverage (it's typically state-specific and can be found in your contract), but if you're ever involved in an accident that causes serious damage to someone else's property (like in a rear-end collision), there's no substitute for having extra liability coverage available.

Post a Comment

Previous Post Next Post