What Time Frame Is Allowed to Buy Gap Insurance?
Gap insurance, as the name implies, covers the gap between the amount you still owe on your auto loan and your car’s appraised actual cash value (ACV) at the time of a crash. Unless you have a particularly strict auto loan or a lease agreement, purchasing gap insurance is not a requirement. However, it can certainly come in handy if you’re in a costly accident and you financed your vehicle with help from a third-party lender.
Time Frame for Purchasing Gap Insurance
You can buy gap insurance even after you've purchased your car. Gap insurance can be purchased from several sources, including your current insurance carrier and specialty companies, but you shouldn't delay before buying it. After all, cars depreciate the fastest in the first few years of ownership. Also, different companies have different guidelines for purchasing gap insurance. It’s a good idea to decide whether you need gap insurance as soon as possible so that you can buy it right away.
Although you may not initially think you need gap insurance, if you have an extended repayment plan, your vehicle might depreciate faster than you can pay off the loan. It’s worth doing the math or talking it over with a financial advisor to see if you’re a candidate for gap insurance and whether it’d be worth it for you.
Buy From Your Lender
Though your lender will likely offer gap insurance when you finance your new car, they likely will not be the cheapest option. Often, you will find less expensive gap coverage when you buy through your existing car insurance carrier. The best thing your lender can offer you is convenience. But mentioning gap insurance to your current insurance agent when putting car insurance on your new vehicle is not difficult.
Buy From Your Car Insurance Company
Gap insurance through your car insurance carrier is often reasonably priced. A couple of dollars a month can mean a huge blessing if you are ever in a major car accident that totals your vehicle. Different carriers have different guidelines for offering gap insurance. Consult your car insurance company to see whether they offer it, for how much, and when.
If you do purchase gap insurance through your car insurance company, make sure you keep the coverage if you switch insurance carriers. Most insurance carriers will honor the coverage if it is on your prior policy.
The Best Time to Purchase Gap Insurance
The best time to purchase gap insurance is when you purchase your new vehicle, whether you get coverage from the lender or your car insurance carrier. Take the time to consider gap insurance and finalize the purchase without procrastinating.
The Difference Between Gap Insurance and Loan/Lease Payoff
Loan/lease payoff coverage is similar to gap insurance, but loan/lease payoff has some limitations. It generally only covers a percentage of your car's ACV at the time of the crash, typically 25%. Also, in a loan/lease payoff, your deductible still applies. In gap insurance, it also typically applies, but there are some plans that may cover the deductible. Furthermore, gap insurance is more widely available and is offered by more lenders and insurance carriers than loan/lease payoff.
On the other hand, loan/lease payoff coverage can be purchased at any time. You will need to check with your insurance carrier to see if it’s offered and its availability.
Progressive. "What Is Gap Insurance?" Accessed July 8, 2020.
Carfax. "Car Depreciation: How Much Value Will a New Car Lose?" Accessed July 8, 2020.
Insurance Information Institute. "What Is Gap Insurance?" Accessed July 8, 2020.
Sun Coast General Insurance Agency. "Loan/Lease Payoff Coverage." Accessed July 8, 2020.
American Family Insurance. "What Is Auto Gap Insurance and What Does It Cover?" Accessed July 8, 2020.