Have you ever thought about how long your gap insurance covers you if your car gets stolen or is totaled? Gap insurance is a key safety net that can protect you from big financial losses. But it’s important to know how long it lasts and what it covers. So, the big question is – How long does gap insurance actually last?
Key Takeaways
- Gap insurance lasts for the duration of your policy or until the loan/lease balance is $1,000-$2,000 less than the car’s value.
- Gap insurance is typically needed for the first 1-2 years of car ownership when depreciation is highest.
- Gap insurance can be canceled once the loan or lease balance is significantly lower than the car’s actual cash value.
- The cost of gap insurance varies but is usually inexpensive, around $40-$60 per year.
- Gap insurance is beneficial when you owe more on your car than it’s worth, such as with a long financing term or small down payment.
What is Gap Insurance?
Gap insurance is an extra coverage that helps if your car gets stolen or totaled. If you still owe money on your loan or lease, it covers the gap. This means it pays the difference between what your car is worth and what you owe.
Gap Insurance Definition and Purpose
Gap insurance covers the gap between what you owe and what your car is worth. This is useful if you’ve financed or leased your car. Cars lose value fast, often more quickly than you pay off the loan.
Gap insurance costs about $20 to $40 a year. Dealers and lenders might say you must have it until you pay off your loan. It’s mainly for cars that are a few years old or less.
| Provider | Gap Insurance Coverage |
|---|---|
| State Farm | Payoff Protector®, covering the loan’s principal balance if the vehicle is stolen or totaled |
| Country Financial | “The Keeper®,” paying for a new car of the same make and model if the insured vehicle is totaled in an accident |
| Progressive | Loan/lease payoff coverage can cover up to 25% of the vehicle’s ACV depending on the state |
| Allstate | Coverage pays up to $50,000 of the loan balance and up to $1,000 toward the insurance deductible in case the vehicle is totaled or stolen |
Buying gap insurance from an insurance company is usually cheaper than getting it from a dealership. Dealerships often charge more for this coverage.
How Does Gap Insurance Work?
Gap insurance helps you if your car gets totaled or stolen. It pays the difference between what you owe and your car’s value. This means you won’t have to pay the rest of your loan or lease if your car is lost.
Let’s say you owe $25,000 on your car loan, but your car is only worth $20,000. Without gap insurance, you’d have to pay the extra $5,000 yourself. But with gap insurance, that money is covered. You can pay off your loan or lease without any extra cost.
To get a gap insurance payout, you need to file a claim after your car is declared a total loss or stolen. Your insurance will figure out your car’s value. Then, your gap insurance will pay the difference between that value and what you still owe.
| Provider | Average Annual Cost of Gap Insurance |
|---|---|
| Travelers | $34 |
| Progressive | $38 |
| Auto-Owners Insurance | $48 |
| American Family | $51 |
| State Auto | $52 |
| Erie | $58 |
| Shelter | $141 |
| Westfield | $70 |
Gap insurance costs vary by car age, location, and provider. But it’s usually a low-cost way to protect yourself from unexpected expenses.
Gap insurance is a smart choice to avoid paying extra if your car is totaled or stolen. Knowing how it works and its benefits can help you decide if it’s right for you.
How Long Does Gap Insurance Last?
Gap insurance covers the gap between your car loan and your car’s value if it gets totaled or stolen. But how long does this coverage last?
Gap insurance is usually needed for the first one to two years. Cars lose a lot of value right after you buy them. So, gap insurance is key during this time. Once your car’s value matches the loan balance, you don’t need gap insurance anymore.
Most gap insurance policies match the coverage period you need. According to the Insurance Information Institute, gap insurance can cost as little as $20 a year. Progressive offers it for about $5 a month, or $60 a year.
Watch your car’s value and loan balance closely. Cancel gap insurance when they are close, within $1,000 to $2,000. This saves you money. Improving your credit score can also lower your insurance costs, including gap insurance.
| Statistic | Value |
|---|---|
| Average Auto Loan Term | 69.5 months |
| Average Annual Mileage for Men | 16,550 miles |
| Average Annual Mileage for Women | 10,142 miles |
| Average Cost of Gap Insurance per Year | $173 per month |
Gap insurance usually lasts one to two years. Keep an eye on your loan and car’s value. This helps you know when to stop paying for gap insurance and save money.
When Do You Need Gap Insurance?
Gap insurance is a smart choice for car owners in some cases. It helps cover the gap between your car’s value and what you owe on your loan or lease. This is key if your car gets totaled or stolen, keeping you from owing a lot of money.
Situations Where Gap Insurance is Beneficial
Here are times when getting gap insurance makes sense:
- Small Down Payment – If you put less than 20% down, your car’s value drops fast. Gap insurance covers the gap.
- Long Loan Term – Loans over 4-5 years can leave you owing more than your car’s worth. Gap insurance helps here.
- Rapidly Depreciating Vehicles – Some cars lose value quickly. Gap insurance protects you in these cases.
- Leased Vehicles – Leases often need gap insurance to cover the gap if the car is totaled.
Gap insurance is not always required, but some lenders or leasing companies might ask for it. Think about your situation to see if it’s a good idea for you.
Gap Insurance vs Other Coverage Types
Gap insurance is special because it helps when your car is totaled or stolen. It pays the difference between what your car is worth and what you still owe on your loan or lease. This is different from comprehensive and collision coverage, which fix your car if it gets damaged.
Comprehensive coverage helps if your car gets damaged by things like weather or theft. Collision coverage fixes your car after an accident. But neither of these covers the gap between what you owe and your car’s value if it’s totaled.
Gap insurance is key for drivers who made a small down payment or have an upside-down car loan. It makes sure you don’t owe money on a car you can’t use anymore. This is a financial safety net.
| Coverage Type | What It Pays For | When It’s Useful |
|---|---|---|
| Gap Insurance | The difference between your car’s actual cash value and the remaining balance on your loan or lease | When your car is totaled or stolen, and the insurance payout is less than what you owe |
| Comprehensive | Repairs or replacement if your car is damaged outside of a collision (e.g., theft, weather, vandalism) | To protect your vehicle from non-collision-related damages |
| Collision | Repairs or replacement after your car is damaged in a moving accident | To cover the costs of repairing your vehicle after a collision |
Gap insurance is special. It works with comprehensive and collision insurance to protect your car fully. While those policies fix your car, gap insurance covers the gap if your car is totaled or stolen.
Conclusion
Gap insurance is an extra auto insurance. It helps if you owe more on your car loan or lease than the car’s worth. It pays the difference if your car is totaled.
Gap insurance lasts as long as your policy. You usually only need it for the first one to two years. This is when your car loses most of its value.
It’s smart to check if you need gap insurance. New cars lose about 20% of their value in the first year. Gap insurance can protect you during this time.
Understanding gap insurance helps you make a good choice. It fits with your money situation and car goals.
Gap insurance is a good idea for many car owners. But, how much you need and for how long depends on your loan, down payment, and car type. Look at options from trusted companies like Travelers and Progressive to find the best coverage for your car.
FAQ
What is gap insurance?
Gap insurance is an extra auto insurance option. It helps if your car gets stolen or is a total loss. If you owe more on your car loan than it’s worth, gap insurance pays the difference. This can help pay off your loan if your car is stolen or totaled.
How does gap insurance work?
Gap insurance covers the gap between what you owe on your car and its value. If your car is totaled or stolen and not found, it pays the difference. This difference is between what your insurance pays and what you still owe on your loan or lease.
How long does gap insurance last?
Gap insurance lasts as long as your policy does. But, you don’t need it for the whole loan term. You can stop it when your car is worth more than what you owe. Gap insurance is usually needed for one to two years.
When do you need gap insurance?
You need gap insurance if you owe more on your car loan or lease than the car’s value. This is true if you paid a small down payment, your loan is 4-5 years, or your car drops in value quickly. Getting gap insurance is a good idea in these situations.
How does gap insurance differ from other auto coverage types?
Gap insurance is special because it needs comprehensive and collision coverage to work. It doesn’t pay for repairs. It only helps if the car is totaled or stolen. Comprehensive covers damage not from a collision, and collision covers damage from accidents.