Does Geico Have Gap Insurance ?What You Need To Know

Gap insurance is a type of auto insurance typically purchased for leased or financed vehicles.

If your vehicle is totaled, your standard auto insurance policy will reimburse you for its current value, which could be less than the amount you owe on the loan.

Gap insurance would cover that difference. In the event of a total loss, you must file an auto insurance claim before filing one for gap insurance.

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Gap insurance is usually necessary until your loan balance equals or falls below your vehicle’s value, typically within the initial loan years. You can ask your insurance provider to end coverage once this occurs./PHOTO COURTESY:MD IMAGES

What Does Gap Insurance Cover?

If your financed vehicle faces total loss, gap insurance can step in to cover the outstanding amount on your loan if the car’s value is less than what you owe.

Gap insurance is activated when you have a financed vehicle and file for a total loss claim—either due to the vehicle being totaled (where repair costs exceed the car’s value) or in cases of theft. When such a claim is made, your insurer typically pays up to the actual cash value (ACV) of your car.

In certain instances, what you owe in car payments might surpass the ACV of your vehicle. This situation is termed negative equity or being “upside down” on your loan. Gap insurance, also referred to as loan/lease payoff insurance, aids in settling the outstanding loan balance during this scenario. It’s important to note that even if your car is totaled, the loan obligation remains in place.

How Does Gap Insurance Work?

Consider this scenario: You’ve financed your vehicle and still owe $10,000 to your lender. Unfortunately, an accident occurs, leading to your car being deemed a total loss. The insurance adjuster assesses your car’s actual cash value (ACV) at $8,000, and your insurer issues a check for this amount. Gap insurance steps in to cover the remaining $2,000, settling your auto loan balance.

When you drive a new car off the dealership, its value begins to depreciate rapidly. If, within the initial years, your new vehicle is totaled, there’s a possibility you might owe the bank more than the car’s worth. Guaranteed asset protection, commonly known as “gap” insurance, bridges this gap by covering the discrepancy.

Do You Need Gap Insurance Coverage?

If your vehicle isn’t financed, there’s no necessity to acquire gap coverage. However, if you opt for financing, the decision to get gap coverage hinges on factors like your driving habits and the pace of your car’s depreciation.

It’s crucial to note the rapid depreciation of vehicles. As per the Insurance Information Institute, numerous vehicles depreciate by 20% or more in the initial year of ownership. If your initial down payment on the car isn’t substantial, there’s a risk that your outstanding loan amount might swiftly surpass the actual value of your car.

Is Gap Insurance Worth It?

If your car isn’t financed or leased, gap insurance might seem unnecessary, but there are scenarios where it could prove beneficial. Consider gap insurance if:

– Your initial down payment was small.
– Your financing period is lengthy.
– You have high mileage habits.
– The vehicle you purchased depreciates rapidly.

To assess the potential value of gap insurance:

– Use Kelley Blue Book to estimate your car’s current value. Also, project its value after each year until the loan is fully paid.
– Review your loan terms to determine the remaining owed amount after each ownership year and compare it to your estimated car value at that time.
– Calculate the gap coverage expenses for those years.
– Compare outcomes. The difference between your car’s value and the owed payments showcases how much gap coverage shields you from potential payment obligations.

How Much Does Gap Insurance Cost?

Gap insurance costs can fluctuate but are generally affordable. Purchasing gap insurance directly from the dealership might incur higher costs, often amounting to hundreds of dollars annually. On the other hand, when adding gap coverage to an existing car insurance policy that already includes collision and comprehensive insurance, the typical increase in premiums ranges from $40 to $60 per year.

How Is Gap Insurance Calculated?

Lenders and dealers determine gap insurance rates by considering your loan amount and the anticipated depreciation of your vehicle. Larger loans may result in higher gap insurance costs.

Does Gap Coverage Always Pay Out?

Exactly, gap insurance comes into play specifically when a total loss claim is validated, and the compensation received for your vehicle falls short of covering your remaining loan amount. In cases where another driver is responsible for the accident, gap insurance can bridge the gap between their insurance company’s settlement offer and the outstanding loan, ensuring you’re not left with the financial burden of the remaining balance.

When Does Gap Insurance Not Pay?

Certainly, certain gap insurance policies come with limitations on the total payout. Take Progressive’s gap insurance policy, for instance, which covers up to 25% of the vehicle’s actual cash value (ACV). In instances where a car has undergone significant depreciation, this gap payout might not suffice to cover the entire remaining loan balance.

It’s important to note that gap insurance wouldn’t provide a payout if your car sustained damage but wasn’t declared a total loss. Additionally, if you’ve failed to pay your regular insurance premium, the gap insurance company might decline to make payments.

Where To Buy Gap Insurance

You can get gap insurance from most major car insurance companies, though not all offer it. You can also get gap coverage from your dealership or auto lender when you purchase the vehicle. However, you’ll pay slightly more this way because the cost is added to your auto loan payments with interest.

Be aware that insurance companies only sell gap coverage as an add-on to an existing policy. In other words, you can’t have a Progressive policy and get State Farm gap insurance. You need to stick with the same provider you have.

FAQS

Gap insurance is an additional policy that complements comprehensive coverage. Comprehensive coverage typically includes liability, collision, and comprehensive insurance. Considering gap insurance might be wise if your vehicle is financed, especially if your initial down payment was minimal at the time of purchase.

  • Does gap insurance include theft protection?

Gap insurance solely applies in the event of a total loss where you owe more on the loan than the vehicle’s worth. Theft isn’t covered by gap insurance. Conversely, comprehensive insurance does cover theft and is mandated by lenders for cars under auto loans.

  • How long does gap insurance stay in effect?

Gap insurance is usually necessary until your loan balance equals or falls below your vehicle’s value, typically within the initial loan years. You can ask your insurance provider to end coverage once this occurs. Yet, if you financed gap insurance through a dealer, it continues until loan completion unless you opt for refinancing.

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