How to Decide if You Need GAP Insurance

GAP Insurance Basics

GAP insurance covers the difference (the GAP) between the actual cash value of a truck and the balance still owed on truck financing. GAP insurance comes into play if your truck is stolen or totaled to the point that repair would cost more than the truck itself.

 

How GAP Insurance Works

Let’s say you purchase a new truck with an original cash value of $200,00 and add on taxes and licensing fees for a total of $225,000. You put a down payment of $10,000 on the new truck, sign your financing papers, get an insurance policy and drive off the lot.

The average new truck depreciates 10% as soon as it leaves the dealer's lot. Since you didn't put in a large down payment and had your taxes and licensing fees rolled into your truck loan, you’re “upside-down” (owe more than truck’s worth) before you’re a block from the dealership.  

If your new truck is in an accident within the first two years and is deemed a total loss by your insurance provider, you may find out that the actual cash value of your truck is less than the amount you owe.

You still owe the finance company $215,000 for the truck ($225,000 original cash value minus the $10,000 down payment). Yet, your insurance will only cover the current cash value of the truck, which is now $140,000 (30% less than the original cash value at 12-24 months). This is the GAP: the difference between what insurance coverage will pay you and what you still owe on it. In this instance, the GAP is an overwhelming $75,000.


 

Who Should Buy GAP Insurance

Buyers that expect to owe more than the truck is worth should purchase GAP insurance. If you made a low down payment, bought a truck that depreciated rapidly, have a high-interest rate or if you rolled other costs into your truck payment (such as taxes and licensing fees), GAP insurance makes sense.

Even if you lease a truck (not outright purchasing the truck), you are still responsible for the cost of the truck is it’s stolen or totaled. Lease payments tend to be much lower than financing payments, which means the GAP between what you have paid and the value of the truck could be much larger for those leasing.  
 

Get the Most Competitive GAP Insurance

GAP insurance helps pay the difference between the actual cash value of the insurance settlement and the amount owed at the time of the truck write-off. Although, not all GAP insurance offers the same coverage. When looking for a GAP insurance provider, look for competitive coverage that offers:

• A settlement of up to $100,000
• A deductible reimbursement of up to $5,000 (in addition to the GAP settlement)
• Down payment protection up to $30,000
• Rental and travel expenses reimbursed in the case of a write-off, including vehicle rental coverage up to $2,500, and travel and accommodation costs up to $500
• Rental and travel expense reimbursement included with either GAP or down payment protection at no additional cost

Want to learn about GAP insurance or prevent your leasing or financing from going “upside-down”? Contact our finance and insurance specialists for expertise.