What Is Gap Insurance For Leased Cars – Gap insurance is a type of car insurance that comes in handy for many people, but not everyone understands what it does and who needs it. In this article we will delve into the concept of gap insurance, its advantages and who should consider purchasing it.
Gap insurance, also known as guaranteed auto protection insurance or guaranteed asset protection insurance, is coverage that helps people pay off their car loan if their car is stolen or declared a total loss after an accident. This coverage fills the “gap” between your car’s actual cash value (ACV) and the outstanding balance on your auto loan at the time of the loss.
What Is Gap Insurance For Leased Cars
To understand how gap insurance works, let’s look at an example. Imagine buying a new car for $30,000 and financing it with a car loan. Over time, the value of the car decreases due to factors such as age, mileage and normal wear and tear. After one year, your car’s ACV may be $24,000, but you still owe $27,000 on your car loan.
Auto Dealership Gap Program
If your car is stolen or involved in an accident at this point, your comprehensive or collision insurance will pay based on the ACV ($24,000). However, you will still need to pay the remaining $3,000 balance on your car loan. This is where gap insurance comes in – it covers the difference between the ACV and your loan balance.
While gap insurance can be beneficial in specific circumstances, not everyone needs it. Below is a list of situations where gap insurance may be needed:
1. Those with financed or leased vehicles: If you have a significant car loan or lease with little to no down payment initially, consider purchasing gap coverage.
2. New car owners: New cars tend to depreciate faster in the first few years, which can cause a larger gap between the ACV and the loan balance.
What Is Gap Insurance? Reviewed By Experts
3. High Mileage Drivers: Those who drive their cars more than average tend to have higher depreciation rates, making gap insurance a good choice for them.
4. Vehicles with fast depreciation rates: If your car model is known to depreciate quickly, gap insurance can offer you financial protection.
5. Long-term loans: Car owners who have car loans with terms longer than 60 months should consider covering gaps, as it may take longer to reach the point where the loan balance is less than the value of the vehicle.
Gap insurance can be a financial rescue for people at high risk of facing financial burdens in the event of theft or a significant accident. However, if you have already paid off your car loan or the value of your car remains above your outstanding balance, gap insurance may not be necessary. Before purchasing any coverage, consider consulting with an insurance agent to help you determine if gap insurance is right for your needs. Guaranteed Auto Protection (GAP) eases the financial impact of negative equity when your vehicle is deemed a total loss. Key Scales Ford encourages drivers to consider Ford GAP insurance because it covers the difference between the exact market value of your car and the loan balance. Standard car insurance policies usually cover the depreciated value of a car, which starts automatically, and vehicles lose about 20% of their value within a year.
What Is Gap Insurance (and Why You May Need It)?
The Key Scales Ford sales and finance team suggest you add Ford GAP insurance to your new car or truck purchase if you:
Essentially, your manufacturer’s warranty pays the current market value of the vehicle in the event of a claim. Following a car accident, Ford GAP insurance covers the difference between the car’s current value (the amount your regular insurance would pay) and the amount you actually owe on it.
EasyCare™ GAP coverage is the MotorTrend® Recommended Best Buy that protects you from paying out-of-pocket costs up to $50,000, up to $1,000 of your insurance deductible, and loan amounts up to 150% of your vehicle’s value. This way you can enjoy the journey with confidence throughout the entire investment. We want to ensure your peace of mind with your purchase, no matter where the roads lead. Our expert finance team will listen to your needs and find the right Ford GAP insurance price that fits your budget. Our loyal customers continue to provide positive reviews of Ford GAP insurance and how it has taken the stress out of driving, knowing that everything is covered. You deserve peace and security. Apply for Ford GAP insurance today at Key Scales Ford, and stay protected for a long time.
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Where Can I Buy Gap Insurance?
If you’ve ever spent a Saturday afternoon in the finance office of a car dealer, you’ve probably heard of gap insurance. But maybe you didn’t quite know what that meant. If so, you are not alone. Simply put, gap insurance – short for Guaranteed Asset Protection – can cover the gap between the insurance payment (in the event of a total loss) and the amount you still owe on the vehicle. Often, the difference between these numbers can be a wide gap to fill, perhaps thousands of dollars.
To better understand the role of gap insurance, it is useful to know why there might be a gap at all.
Two key numbers come into play: your loan balance and the insured value of the car. Both decrease over time, but not at the same rate. The loan balance changes as the payments are made, but a larger percentage goes to interest at the beginning of the loan.
The insured value follows the market value of the car. Insurers may use their own tools to determine the value, but you can use the trim selector on the model pages of our Buyer’s Guide or NADA to estimate your car’s market value.
What Are The Benefits Of Selling Gap Insurance?
Before the market turned with demand for new cars far outstripping supply, you could expect the value of a new car to drop 20 to 30 percent in the first year. So, if you bought a car for $40,000 at a time when parts shortages weren’t a big problem, it might be worth about $8,000 less in a year, making its value $32,000.
Let’s say that a year after buying your new car, you are involved in an accident in which you are at fault. Fortunately, you have collision coverage, so the insurer will help pay for the repairs. However, the value of the vehicle will determine how much the insurer will pay or whether it will repair the vehicle at all.
It is not unusual for an insurer to consider a vehicle a total loss once the repair estimate reaches 70 to 80 percent of the car’s insured value. Auto body shops often find additional damage once they take the car apart to make repairs, which increases the overall cost of the repairs.
For your car (currently) $32,000, this means that if the repair estimate exceeds $22,000, the insurer may call the vehicle a total loss.
Common Questions About Gap Insurance
If the car is a total loss, the insurer cuts a check for the insured value, probably about $32,000 in this example, minus your deductible. The deductible is the portion of the claim that you pay. Collision insurance deductibles are often between $500 and $1,000. Let’s say you chose a $1,000 deductible. In this example, the insurer would pay $31,000.
When you bought your car, you financed the $40,000 purchase with a 5 percent loan for 72 months. Your tax and tags are covered in the trade-in. After 12 months of making payments, the car loan balance is about $34,000.
However, this example is one of the less problematic scenarios. If the car you choose depreciates faster or you pay a premium over the market price or a higher interest rate, the gap can be much larger.
Without gap insurance, you may still have a balance on the totaled car at the time you need to buy a new car.
What Happens When Your Leased Car Is Stolen
Some car insurance companies offer gap insurance, but gap insurance is not part of a normal car insurance policy. Instead, it’s an add-on that can fill a gap if your car is totaled and the claim payment is less than your loan balance.
While not part of your auto insurance policy, your gap insurance supplements two coverages in your auto policy: collision insurance and comprehensive insurance.
If one of these covers is triggered and the insurer deems the vehicle a total loss, gap insurance can cover
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