How Long Does GAP Insurance Last? What is It? How Does It Work?

How Long Does GAP Insurance Last? What is It? How Does It Work?

Questioning how long does GAP insurance last?  Maybe you’re curious about your GAP Coverage’s cancellation or refund options. We’ll address all of your GAP Insurance questions in the paragraphs that follow.

When purchased from a dealership, gap insurance lasts for the duration of the loan or lease, and when purchased from a regular auto insurance provider, it lasts for the duration that it is still listed on the policy.

Continue reading to learn more.

What is GAP Insurance on a Car?

A supplemental auto policy called gap insurance pays for any discrepancy between the insured value of a car and the remaining loan or lease that the owner is required to pay. If your vehicle is totaled or stolen before the loan on it is paid off, then gap insurance is needed to cover any difference between your auto insurance payout and the amount that you owe on the vehicle.1

If you’re financing a vehicle purchase, your lender may require you to have gap insurance for certain types of cars, trucks, or SUVs. Specifically, this includes vehicles that may depreciate and lose value at faster rates than usual, such as luxury sedans or SUVs or particular other kinds of SUVs.

When you buy or lease a car from some dealers, they include gap insurance. It’s crucial to weigh the price against what conventional insurers might demand.

A few years ago, you used a five-year loan to finance a new vehicle. Although you still have time to pay back the loan, you’ve decided to sell your car because your needs have changed. So, how to sell a car when you still have a loan? 

How Long Does GAP Insurance Last What is It How Does It Work
How Long Does GAP Insurance Last? What is It? How Does It Work?

How Long Does GAP Insurance Last?

The terms of GAP Insurance purchased through the lender typically extend for the duration of the loan. GAP Insurance remains active for the duration of the policy when purchased through an auto insurance provider.

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How GAP Insurance Works?

In the beginning, it’s fairly simple for a driver to owe the bank or leasing company more money than the vehicle is worth. A small down payment and a long loan or lease period are enough to do it, at least until your monthly payments add up to sufficient equity in the vehicle. How Much is Car Insurance for a New Driver?

Equity must equal the current value of the car in order to file claims and have the vehicle valued. Your standard insurance will cover that amount in the event that the car is totaled, not the amount you paid for it. The issue is that during the first few years of ownership, cars lose value quickly. Actually, just the first month after purchase, the average car loses 10% of its value.

The price of buying a brand-new car in the event that yours is totaled is not covered by your insurance. You will receive a check for the amount that a car similar to yours would fetch on a used-car lot. Insurers call this the vehicle’s actual cash value. Check for How to Get Car Insurance Before Buying a Car?

That specific gap isn’t covered by gap insurance. In order to limit your financial losses, the payouts are calculated using actual cash value rather than replacement value. How Does Car Insurance Work?

  • How Can You Get a GAP Insurance Refund?

In order to cancel an auto insurance policy that includes GAP Insurance, get in touch with the provider. Based on the amount of coverage you have already paid for but will not use, you will receive a refund.

EXAMPLE: The entire premium is paid up front for a six-month policy. The client takes GAP Coverage out of the contract two months later. The four months of the policyholder’s refund will be given. Full coverage car insurance is a great choice especially choosing car insurances.

Even if they didn’t make a claim, the auto insurance policyholder won’t get their money back for the two months that GAP Insurance was offered.

If you bought your car from anyone other than a dealer check out:

How to Cancel GAP Insurance?

Or, if your GAP insurance is provided by a dealer (Honda, Dodge, Buick, etc..) Visit our collection of articles on GAP cancellation.

Customers of automobiles may return a purchased car and receive a full refund within a certain time frame, depending on the state. Refund windows for service contracts and other add-ons will also differ.

Canceling car insurance is typically a simple procedure, regardless of whether you’re switching insurers or selling a vehicle that you won’t be used for transportation. Below will answer how to cancel car insurance, what happens when you cancel your policy, what if your insurance company cancels your policy, do insurers charge cancellation fees, and…


How Long Does GAP Insurance Last? What is It? How Does It Work?
How Long Does GAP Insurance Last? What is It? How Does It Work?

What is Covered With GAP Insurance?

In the event of a total loss, GAP Insurance pays the difference between the car’s actual cash value and the outstanding loan balance. The maximum amount covered by comprehensive and collision insurance is the value of the vehicle. The value of recently purchased cars is frequently lower than the loan balance due to the rapid depreciation of such vehicles.

The deductible on your comprehensive and collision insurance might also be covered by GAP insurance from dealerships like Ford and Toyota. To find out if the deductible is covered, check the terms of your GAP Insurance.

GAP Insurance does not cover mechanical breakdown or late loan payments, so make sure to maintain your vehicle.

You may want to know: How Long Does It Take to Get Car Insurance?

Cost of GAP Insurance

Gap insurance adds an average of $60 per year to your annual car insurance cost, according to a Analysis of gap insurance costs at major insurance firms by Forbes Advisor.

Additionally, you can remove gap insurance from your policy when you are no longer in need of it because your loan balance is roughly equal to or lower than the value of your vehicle.

A car insurance company offers gap insurance at a much lower cost than a car dealership. Although it may seem convenient to purchase gap insurance from a car dealership, doing so is frequently more expensive in the long run. According to a group of independent insurance agents called Trusted Choice, car dealerships typically charge up to $600 for gap insurance. Check for What Age Does Car Insurance Go Down?

You may be able to add the cost of gap insurance to your auto loan, but doing so will result in interest charges. Due to the fact that your gap insurance is connected to your loan, you will also lose the ability to cancel it, which means you risk paying for unnecessary coverage. Read more: Average Cost of Car Insurance

How Long Does GAP Insurance Last? What is It? How Does It Work?
How Long Does GAP Insurance Last? What is It? How Does It Work?

Alternatives to GAP Insurance

Some auto insurance providers offer additional forms of protection that resemble gap insurance. These two gap insurance substitutes might be of interest to you.

New Car Replacement Coverage

Your totaled or stolen car can be replaced with a new car thanks to new car replacement coverage.

If you have this coverage, the insurance provider will compensate you with enough money to replace your old car rather than paying you the car’s depreciation-affected actual cash value. To be eligible for new car replacement coverage, your car must meet certain age and mileage requirements.

In most cases, new car replacement coverage comes with a deductible.

Here are examples of companies that offer this coverage:

  • Amica: The Platinum Choice Auto package from Amica includes coverage for new vehicle replacement. If a totaled car is less than a year old and has less than 15,000 miles on it, Amica’s new car replacement coverage will replace it with a brand-new car.
  • Farmers: If your car is totaled within the first two model years and 24,000 miles, Farmers will replace it with a new car of the same make and model.
  • Nationwide: For cars under three years old, Nationwide offers a brand-new replacement.

As you can see, new car replacement coverage differs considerably depending on the company, so if you want new car replacement protection, make sure to read the fine print and comprehend exactly what you’re getting.

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Better Car Replacement Coverage

Better car replacement coverage is available from a few auto insurance providers, including Horace Mann and Liberty Mutual. You are given a reimbursement for a newer or better model of your totaled vehicle. There might be mileage restrictions for this coverage.

With Liberty Mutual’s better car replacement program, policyholders are paid for a car that is one model year newer and has 15,000 fewer miles. Let’s use a 2020 car with 30,000 miles on it as an example. With the help of this coverage, the policyholder could purchase a 2021 model of the same vehicle with 15,000 miles on it.

Only policyholders who own their vehicle may purchase the optional coverage. For leased vehicles, it is not offered.

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How Long Does GAP Insurance Last? What is It? How Does It Work?
How Long Does GAP Insurance Last? What is It? How Does It Work?

Who Needs GAP Insurance?

Customers of new vehicles should have GAP Insurance if their loan balances exceed the value of the vehicle. Anyone renting a car should also have GAP Coverage, but make sure to check your lease contract to be sure.

Pro Tip: If you want to avoid GAP Insurance on a vehicle purchase:

  • Avoid getting a loan by paying cash for the car.
  • Make a down payment that will ensure that even after depreciation, the loan balance will never exceed the value of the new car.
  • A used car that won’t lose value too quickly is one you should buy.

Speaking of Rental Cars, You Pobably Want to Know:

How Do I Get GAP Insurance?

Asking your auto insurance provider if they can include it in your current policy is the quickest and likely least expensive method. To make sure you’re getting the best deal, you can compare prices online.

You will probably be offered a gap policy by the car dealership, but the cost will almost certainly be higher than what a major insurer will charge. In any case, make sure your car doesn’t already have gap insurance by checking. Gap coverage is frequently included in the price of auto lease agreements. Why is Car Insurance So Expensive?

In order to fulfill your insurance obligations, you must first gather some information about the vehicle you plan to purchase. The following information on auto insurance for car buyers includes instructions on how to get car insurance before buying a car

Getting pre-approved is the closest you can come to the perks of paying with cash while not having to save up for months or years in advance. So, how to get pre approved for a car loan?

In the sections below, we give information on how long does it take to get car insurance and offer suggestions for finding it quickly. Continue reading.

There are options available if you find yourself in a situation where you are unable to continue making your regular payments or fear that you may soon be in default on your loan. So, how to get out of a car loan?

How Do Insurance Companies Decide to Total a Car?

Gap insurance will kick in if your car is declared a total loss, but the definition of a “totaled” car varies from state to state. In many states, if the cost of repairs exceeds a predetermined percentage of the car’s value, the car is deemed totaled. Repair costs generally include both parts and labor. Explore the answer: Average Cost of Car Insurance for 18-Year-Olds, How Much is Car Insurance for a 16-year-old

For determining a vehicle’s value, some states mandate using NADAguides. In other states, the only requirement is that the vehicle’s value come from the most recent edition of a nationally recognized database.

Other states use what’s called a “total loss formula” (TLF), which, for instance, in California is calculated as Cost of Repair + Salvage Value ≥ Actual Cash Value. Your vehicle is deemed a total loss if the combined cost of repairs and salvage value exceeds the ACV.

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How Long Does GAP Insurance Last? What is It? How Does It Work?
How Long Does GAP Insurance Last? What is It? How Does It Work?

Frequently Asked Questions

What is GAP Insurance?

When your car is stolen or declared a total loss, gap insurance, an optional auto insurance policy, kicks in. Gap insurance covers the difference when your loan balance is higher than the value of your car. For instance, if you owe $25,000 on your loan but your car is only worth $20,000, your gap coverage will pay the $5,000 difference, less your deductible.

How Does GAP Insurance Work?

Your depreciation is covered by gap insurance. After you purchase a car, its value begins to decline, sometimes noticeably. This depreciation causes a difference between what you owe and the value of the car if you finance or lease a car.

What is the Most GAP Insurance Will Pay?

The most gap insurance will pay is the full amount left on your loan or lease balance. The actual cash value of your car, the balance of your loan or lease, and your insurance company all play a role in determining how much gap insurance will actually cover.

What Happens If You Don’t Use Your GAP Insurance?

You’ll only receive a refund for the GAP insurance that you haven’t used. For instance, if you paid for a year of coverage and decide to cancel your policy after three months, you will only receive a refund for the remaining nine months. Your method of paying your insurance bill will determine how much money you get back.

Do You Have to Renew GAP Insurance?

When this time period is up, the policy won’t automatically renew, and there typically isn’t a way to renew it or get a new one. As a result, a GAP insurer won’t usually send out a renewal notice. The main reason GAP insurance cover does not renew is because it generally doesn’t need to.

Can You Get GAP Insurance After You Buy a Car?

Depending on the model year of the vehicle, you might be able to obtain gap insurance after purchasing it. Many insurers include gap insurance as a component of a car insurance policy, so it isn’t just available at auto dealerships. And, according to the III, purchasing gap insurance from an insurance company is frequently less expensive than doing so from a car dealership.

For you to purchase gap insurance, some insurers demand that your car be brand-new. That may mean:

  • That you are the original owner of the vehicle (you have the original lease or loan on the vehicle)
  • That the vehicle is not older than two or three model years

To find out what requirements must be met before you can purchase gap insurance, check with your insurer.

Summary: How Long Does Gap Insurance Last?

Gap insurance lasts for the length of the loan or lease when purchased from a dealership, and it lasts for as long as it remains on the policy when purchased from a standard car insurance company.

If you owe a lot more money than the car is worth on your loan or lease, the relatively low cost of gap insurance from an insurer might be worthwhile.

If you have enough money not to care about the “gap,” you may decide to skip the gap insurance.

You might be willing to pay the difference if your car is totaled, for instance, if its current value is $10,000 and you still owe $12,000 on the loan. However, you might not be able to afford to cover the $8,000 difference if you have a $30,000 auto loan on a $22,000 vehicle. In this situation, buying gap insurance might be worthwhile.

If you have any questions, please leave a comment. KV Auto tries to give you the best car industry information. Thank you for reading.

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