Does Geico Offer Gap Insurance – “Gap” is an insurance industry acronym for “Guaranteed Car Protection.” Gap insurance compensates the car owner when the total loss payment is less than the balance of the loan or lease. Gap insurance covers the difference between the car’s depreciated value and the loan amount owed if the car is involved in an accident.
If you finance or lease a car without a down payment, the amount you borrow may be more than the total value of the car. If your car is destroyed in an accident or stolen, standard auto insurance will only pay the current value, which may be less than the amount of your outstanding loan or lease.
Does Geico Offer Gap Insurance
Gap insurance is a supplementary car policy that covers any difference between the current insured value of the vehicle and the loan or leasing balance. If the vehicle is destroyed or stolen before the loan is paid off, gap insurance covers the difference between the auto insurance payment and the loan amount owed on the vehicle.
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If you are financing the purchase of a vehicle, your lender may require you to have gap insurance for certain types of cars, trucks or SUVs. In particular, this includes vehicles that can depreciate and depreciate more quickly, such as luxury sedans or SUVs.
Some dealers offer gap insurance when you buy or hire a vehicle. However, compare the cost to what traditional insurers may charge.
It is easy for a driver to owe the lender or leasing company more than the car is worth. A small down payment and a long loan or leasing term delay the capital in the vehicle. The current value of the car, not the price you paid, is what your regular insurance will pay if the car is totaled. However, cars deteriorate quickly. The average car loses 10% of its value in the first month after purchase.
Your policy will not pay for the cost of replacing your car with a brand new vehicle. You will be refunded the price that a car comparable to yours would sell for on a used car lot. Insurers call this the actual cash value of the vehicle. Because payments are based on actual cash value rather than replacement value, gap insurance can help reduce financial losses.
What Is Gap Insurance And How Does It Work?
If you have gap insurance, check your credit balance often and cancel your insurance when you owe less than the book value of your vehicle. Use the National Automobile Dealers Association (NADA) guide or Kelley Blue Book to determine your car’s value.
You bought a new car with a sticker price of $28,000 with 10% down, bringing your loan cost to $25,200. With a five-year car loan and a 0% new car finance agreement, your monthly payment is $420. After 12 months, you paid $5,040. You still owe $20,160.
After one year, the car is registered in a traffic accident and the insurance company calculates the current value of the vehicle. Like the average car, your car is now worth 20% less than what you paid for it a year ago. That’s $22,400. Your coverage will reimburse you enough to cover your outstanding car loan debt and leave you with $2,240 to spend on a replacement vehicle.
But what if your car is one of the models that have no value? If your car has depreciated 30% since you bought it, your insurance check will be $19,600. You owe your lender $560 and gap insurance is required.
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In 2022, the average new car loan exceeded $32,000 with an average loan term of 70 months. You may want to consider gap insurance as a supplement to your collision insurance for the period that you owe more than its actual cash value on that car.
You may have heard the term “upside down” in reference to mortgage debt. The concept is the same whether the financed item is a house or a car. It may currently be worth less than the loan balance.
This is not as scary as it sounds. If you put down just a small amount of money towards the purchase and pay the rest in small monthly installments spread over five or more years, you won’t immediately own a large chunk of that house or car free and clear. As you pay down your principal, your equity increases and your debt decreases.
According to the Insurance Information Institute, you may need to consider purchasing insurance for your new car or truck purchase if:
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In these cases, gap insurance could protect you from potentially negative financial consequences if the vehicle is declared a total loss.
If you’re still paying off your car, you need collision insurance. You will likely be required to have collision coverage under the terms of your loan or lease agreement.
It’s worth checking the National Automobile Dealers Association (NADA) or Kelley Blue Book guide periodically to see how much your car is worth. Compare it with your loan balance. If your loan balance is less than the value of the car, you have nothing to worry about.
Trade-in value insurance, sometimes called new car trade-in insurance, is a policy feature offered by auto insurance companies. This option gives you cash for a brand new car of the same make and model (minus the deductible) instead of the depreciated value of your totaled car if your vehicle is totaled. This type of insurance can replace gap insurance. Your car must meet the age and mileage requirements to qualify for this type of insurance.
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Gap insurance can be added to your comprehensive auto insurance policy for as little as $20 per year, according to the Insurance Information Institute. The cost will vary depending on insurance laws. Your condition, age, driving experience and vehicle affect the prices.
The insurer usually rates this at 5% to 6% of the collision and total premiums on your auto insurance policy. For example, if you pay a combined $1,000 a year for these two coverages, gap insurance can add an additional $50 to $60. According to Bankrate, an insurer that covers the gap is usually less expensive than a retailer or lender.
Some retailers are required by state law to offer gap insurance. Dealerships usually charge a lot more than the big insurance companies. On average, the dealership will charge you a flat fee of between $500 and $700 for the difference policy. Many insurers will allow you to add gap coverage to your existing auto insurance policy.
If there is a period during which you owe more on your car than its current value, gap insurance could be worth it. If the car is totaled, you won’t have to pay out of pocket to make up the shortfall between the car’s insured value and the amount you owe the lender.
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Comprehensive car insurance is comprehensive coverage. It includes accident insurance, but it also covers any unexpected catastrophes that can destroy the car, from vandalism to flooding. But pay only the actual cash value of the car, not the price you paid for it or the amount you may still owe on the loan. Gap insurance can help cover the difference.
The easiest way, and probably the cheapest, is to ask your car insurance company if they can add it to your existing policy. A car dealer will offer you a gap policy, but the price may be higher than that of a major insurer. Car leasing contracts often create gap coverage in their pricing.
Gap insurance is an optional product that is sometimes required under the terms of your lease or loan agreement. A gap insurance policy makes sense for those who have significant negative equity in the car. This includes drivers who put down little money or have a long loan repayment period.
This article has been amended to correctly define gap insurance as necessary for any period in which the current value of the vehicle is less than the balance of the loan or lease.
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