NO. End of post.
No, not really 😉
I’ll tell you why a few paragraphs down (for all you instant gratification folks, it’s got its own heading, so feel free to skip ahead if you simply can’t control yourself).
But first, for those that may be unfamiliar with gap insurance- a definition for you:
Gap insurance has one main goal: to pay off the balance of a loan or lease if the vehicle is totaled and the loan or lease balance exceeds the actual value of the car.
Here’s an example of gap insurance in action:
You buy a brand spanking new ride for $30,000. Let’s say you don’t make a down payment (or a very small one) and finance the balance. One year later you’re in an accident that wipes out your car. The insurance company writes a check for the current value of $25,000. Your loan balance is $29,000. The gap insurance will pay the $4,000 loan balance ($29,000 – $25,000).
Think this can’t happen? It does. ALL. THE. TIME. We’ve paid several claims where this exact situation occurred. It may have been 6 months or 2 years down the road, but it has happened. And let me tell you- nothing is more painful than having to continue paying for a car you no longer have. And if you still owe money- you still must pay. Gap insurance makes this pain go away.
Pretty sweet deal, huh?
And here’s why I say don’t buy gap insurance from the dealership (I knew it- you skipped ahead didn’t you?)
Because your auto insurance policy can offer it for less. It’s simply added as an endorsement. Real-life example- our customer just bought a new vehicle. She purchased the gap insurance at a cost of $12 per month. That’s $144 for the year.
We could add the coverage to her auto insurance policy for $10. For the whole year.
Hmmm. Seems like a no-brainer to me.
So why don’t more people just add the gap insurance to their auto insurance policy?
- They don’t know it exists. So I’m telling you- most reputable companies offer this coverage. They may call it Loan/Lease Gap, Equity Gap, New Auto Security or 800 other names. But if you ask your auto insurance company if they offer an endorsement that pays off the balance of a loan or lease if your car is totaled, they’ll know what you mean.
- The car salesman/finance person makes a convincing case to buy it RIGHT NOW from them. What’s another $12 a month on a $400 car payment anyway? Maybe there’s scare tactics thrown in and maybe they make a little extra money off the sale.
- You buy a used vehicle and your auto insurance company only allows it for NEW vehicles. Usually that means not previously titled before. Gap insurance is NOT meant to pay for a poor financial decision on your part.
Example: You upgrade to a newer car (going from 2005 to 2009). You still owe on your 2005 car loan, but the dealership says you can just roll your old loan into your new one. It is quite possible that the new loan exceeds the value of the car. Gap insurance is NOT designed for this. Again, I’ve seen it happen.
Adding Gap Insurance to your auto insurance policy is just a smart financial decision
- It’s way less money than buying it through the dealership
- It can save your butt if you total your car in the first few years of your loan or lease. Again paying for a car you no longer own is kind of like beating a dead horse.
Like any insurance policy, auto insurance is meant to protect you from a financial catastrophe. Adding gap insurance to your auto insurance policy is just one more way to accomplish this goal, at a very affordable cost.