Is Gap Insurance Worth It?

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If you’re in the market for a new Kia model, then you want to ensure that you’ll have reliable coverage for years to come around Ann Arbor, Belleville, and Canton, MI. While traditional insurance plans are always a safe bet, gap insurance is another helpful option to protect your investment.

Learn more about gap insurance and how it can benefit you at LaFontaine Kia today!

What Is Gap Insurance?

Since gap insurance (Guaranteed Asset Protection) may not be as common as a traditional insurance plan, you may be thinking, “What is gap insurance?” Well, gap insurance covers the difference between the cash value of your car and the amount you still own on your loan.

Is Gap Insurance Worth It?

Now, you might be thinking, “Is gap insurance worth it?” or perhaps, “Do I need gap insurance?” In fact, many customers say yes. Here are a few reasons gap insurance can be an asset to you and help keep your vehicle in tip-top shape on the Michigan roads:

  • Depreciation begins the moment you drive off the dealership lot.
  • Accidents can happen at any time, including right after you drive a new vehicle off the lot.
  • Most insurance companies only cover what your vehicle is worth at the time of the accident.
  • If your new car is totaled or stolen and you owe more on it than its current deemed value, gap coverage accounts for that difference.
  • The cost of gap insurance is relatively low and it is easy to obtain, so there is really no reason not to have it—just in case.

Is Gap Insurance Required?

Not every driver needs gap insurance. Its necessity hinges on several key factors. If you've leased or financed your car and made a small down payment—or none at all—gap insurance may be a prudent choice. This is also the case when your loan term extends beyond four years. In these scenarios, the depreciation of your vehicle will likely outpace your loan payment schedule, leading to your being "upside-down" in your loan.

Similarly, if you've leased your car, gap insurance is typically required by the leaseholder. Leasing a car is fundamentally an agreement to pay for the vehicle's depreciation during the lease term. If the car is in an accident and deemed a total loss, the amount you owe under the lease is often much greater than the actual cash value of the vehicle. Gap insurance covers this difference, ensuring you don't find yourself financially strained due to unforeseen circumstances.

Do I Need Gap Insurance?

Gap insurance isn't mandatory in most states or for most insurance companies. However, a dealership or a lender may require it as part of a lease or loan agreement. It's essential to review your lease or loan contract carefully and understand your financial obligations, including the need for gap insurance. Even if it isn't required, gap insurance may be worth considering, if you'd face financial hardship paying off your auto loan or lease without it.

If you're a driver who's taken the plunge into purchasing a high-depreciation vehicle, gap insurance becomes even more important. These vehicles lose their value faster than the average car, meaning the gap between what you owe on your auto loan and the actual cash value of your car can be quite large.

How Long Does Gap Insurance Last?

Gap insurance typically lasts for the duration of your loan or lease. Once you've paid off your loan or your lease term has ended, the gap insurance coverage will also cease. However, the need for gap insurance usually diminishes over time. As you continue making payments on your car loan, the gap between what you owe on the vehicle and its actual cash value should decrease.

It's worth noting that many insurers require comprehensive and collision coverage as a precondition for issuing gap insurance, adding another factor to consider in your overall insurance plan.

How Do I Buy Gap Insurance?

If you’re sold on gap insurance, here are a couple of ways you can find gap insurance coverage:

  • Your regular auto insurance company may offer it for a low monthly cost.
  • You may be able to buy it for a one-time fee from your dealership or car loan company.
  • You can get it from a specialized gap insurance company for a one-time fee.

Gap Insurance on a Leased Kia

When leasing a vehicle, gap insurance often forms part of the lease agreement. Lease contracts typically include a form of gap protection due to the inherent risk the lessor undertakes in the event of a total loss. It's crucial to read your lease agreement carefully, as the level of coverage can vary. Even if gap coverage is included, it might be worthwhile to purchase additional gap insurance to cover deductibles or other costs not included in the lease's gap protection.

Rely on LaFontaine Kia for Your Finance and Insurance Needs

Is gap insurance worth it to you? Ultimately, the answer depends on your personal circumstances, including your vehicle's depreciation rate, loan term, and the amount of your down payment. It's advisable to consider gap insurance when you've leased a vehicle, made a small down payment, or extended your auto loan beyond four years.

Learn more from our dedicated finance team as well as other helpful sources, such as our guides to buying used vs. buying new and leasing vs. financing. As always, if you have any questions, feel free to contact us and speak with a dedicated member of our finance team. You can also stop by our showroom near Ann Arbor, Belleville, and Canton, MI, and talk to us in person!

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