When you buy a new car, sometimes you owe more on your loan than the car is worth. Gap insurance helps cover that difference if your car gets totaled or stolen. You might be wondering, how much is gap insurance per month? On average, it costs between $20 and $40. Knowing this can help car owners plan better and avoid big surprise costs. In this guide, we’ll break it all down in a super easy way!
What Is Gap Insurance?
Gap insurance, or Guaranteed Asset Protection insurance, helps you if your car is totaled or stolen and you owe more money on your loan than the car’s current value. It covers the “gap” between what your car is worth and what you still owe the lender.
People usually buy gap insurance when they finance or lease a new car. Cars lose value quickly, and sometimes, the loan balance stays higher than the car’s price for a while. That’s where gap insurance steps in.
For example:
Imagine you bought a car for $30,000. A year later, the car’s value drops to $24,000, but you still owe $28,000 on your loan. If your car is totaled, your regular insurance pays only $24,000. Gap insurance would cover the $4,000 difference so you don’t have to pay it out of your own pocket.
How Much Is Gap Insurance Per Month?
The average cost of gap insurance per month is usually between $20 and $40. However, the exact price can change depending on where you buy it.
Here’s a simple breakdown:
Car Dealer:
Buying gap insurance through a dealership usually costs more. You can expect to pay between $30 and $40 per month. Dealers often add it into your loan, which can make it even more expensive over time.
Insurance Company:
Getting gap insurance directly from an auto insurance company is often cheaper. Monthly prices are usually around $20 to $30. Plus, you can sometimes bundle it with your regular car insurance for even better savings.
Factors That Affect Gap Insurance Costs
Several things can change how much you pay for gap insurance each month. Let’s look at the biggest factors:
1. Car’s Age and Value
- Newer cars usually need more gap insurance because they lose value faster.
- Older cars may not need gap insurance at all if the loan balance is close to the car’s value.
2. Loan Terms
- If you have a larger loan or a long-term loan, your gap insurance might cost more.
- The bigger the loan compared to the car’s value, the more important and expensive the gap insurance can be.
3. Where You Buy It
- Car Dealers often sell gap insurance at a higher price. They sometimes add the cost into your loan, which means you might end up paying interest on it too.
- Insurance Companies usually offer cheaper gap insurance, and you might even bundle it with your regular auto policy to save even more.
4. Type of Car
- If you drive a luxury car or a car that loses value quickly (like some sports cars), your gap insurance will likely be more expensive.
- Cars that hold their value better usually cost less to insure with gap coverage.
Is Gap Insurance Worth It?
Whether gap insurance is worth it depends on your situation. For many people, it can be a smart way to protect their wallet, especially when their car loan is bigger than their car’s value.
You should consider buying gap insurance if:
- Big car loan? âž” Yes
If you owe a lot on your loan, gap insurance can save you from paying thousands out of pocket if your car is totaled. - Small down payment? âž” Yes
If you made a small or no down payment, you might owe more than your car is worth for a long time. Gap insurance can cover that difference.
You may not need gap insurance if:
- Short loan term? âž” Maybe not
If you’re paying off your loan quickly or made a big down payment, your loan balance may match your car’s value closely. In that case, gap insurance might not be necessary.
How to Get the Best Deal on Gap Insurance
If you want to make sure you’re getting the best price on gap insurance, follow these tips to save money without sacrificing coverage:
1. Shop Around
- Compare quotes from both insurance companies and dealers.
- Prices can vary widely, so get several quotes to find the best deal.
2. Ask About Bundling
- Some insurers offer discounts if you bundle your gap insurance with regular car insurance.
- Ask your insurance provider if you can save by combining policies.
3. Read the Fine Print
- Always review the policy details carefully.
- Understand coverage limits and the rules before you commit to avoid surprises later.
Can You Cancel Gap Insurance Early?
Yes, you can cancel gap insurance early, but it depends on your policy and provider. If you decide you no longer need it, follow these simple steps:
How to Cancel:
- Contact the Provider: Call or email your insurance company or dealer.
- Request Cancellation: Ask them to cancel the policy and provide any necessary forms.
- Confirm Details: Make sure they have all the correct information.
Refunds:
- Yes, you may receive a refund for the unused portion of the coverage if you cancel within a certain time frame.
FAQS
1. What’s the most gap insurance will pay?
Gap insurance typically covers the difference between your car’s actual cash value (ACV) and your remaining loan balance. The amount it covers is limited to your loan balance or lease payoff, whichever is lower. Some policies may have caps or exclusions.
2. What does a gap plan cover?
A gap plan covers the difference between what you owe on your car loan and what your car is worth if it’s totaled or stolen. It helps ensure you don’t owe money out of pocket after your insurance payout.
3. What is gap allowance?
Gap allowance is the amount your gap insurance will pay toward the remaining loan balance if your car is totaled. It’s usually based on your loan balance and the car’s depreciation. Some insurers provide more flexibility with this allowance.
4. What is better than gap insurance?
Alternatives like loan/lease payoff coverage or new car replacement coverage might offer better protection depending on your needs. These options often provide more extensive benefits, especially for new car owners.
5. Can you buy gap insurance anytime?
You can buy gap insurance at any time during your car loan or lease term, but it’s most common to purchase it when you buy or lease your car. It’s also available after you’ve financed your vehicle.
6. Does gap insurance cover theft?
Yes, gap insurance can cover theft if your car is stolen and the payout from your regular insurance doesn’t cover the remaining loan balance. It helps bridge the gap between the car’s actual value and your loan balance.
7. Is gap insurance included in full coverage?
No, gap insurance is not included in full coverage car insurance. It needs to be added separately, either through your car insurance provider or the dealership where you bought the car.
8. How long do you need gap insurance?
You typically need gap insurance until your loan balance is less than the car’s value. This is usually the case when your loan is paid off or the car has depreciated enough. It’s recommended for the first few years of the loan.
Conclusion
In summary, gap insurance can protect you from losing money if your car is totaled and you owe more than it’s worth. The average monthly cost typically ranges from $20 to $40, depending on where you buy it. When asking how much is gap insurance per month, be sure to compare options between dealers and insurance companies. Always review your coverage carefully to ensure it fits your needs.
