If you’re financing or leasing a car, you may want to consider purchasing gap insurance. In this article, we at the MarketWatch Guides team will explain what gap insurance is, how it works, and the best car insurance companies that offer the coverage.
### Key Takeaways
– Gap insurance covers the difference between your car’s actual cash value and the balance on your auto loan in the event of a total loss.
– The best gap insurance companies provide coverage for negative equity and theft.
– To find gap insurance, contact your provider, a dealership, or a lender.
### What Is Gap Insurance?
Gap insurance, which stands for Guaranteed Asset Protection (GAP), is an optional coverage that helps pay the difference between the actual cash value (ACV) of your vehicle and the remaining auto loan balance. It kicks in if your car is totaled or stolen. You’ll also commonly see it referred to as loan/lease payoff insurance.
Gap insurance is usually added to full-coverage car insurance, which is a policy that includes:
– Liability coverage
– Collision coverage
– Comprehensive coverage
Many lenders and lessors require drivers to carry full-coverage policies.
### How Does Gap Insurance Work?
To best illustrate how gap coverage works, let’s look at a hypothetical scenario:
Say you’re financing your vehicle and you still owe $11,000 to your lender.
You get into an accident and the car is deemed a total loss.
The claims adjuster assigned to your case determines that your vehicle’s actual cash value is $6,000.
Your insurer cuts a check for the $6,000 ACV, which you’ll use to pay what you still owe to your lender. But after that payment, you’ll still owe $5,000 to the lender.
If you have gap insurance, that difference will be covered. If not, you’ll have to pay $5,000 out of pocket.
Depreciation starts the moment you drive a new car off the lot. If you total the vehicle within the first few years of owning it, you’ll likely owe the lender more than the value of your car. By adding gap coverage to your auto insurance policy, you’ll be able to protect yourself financially.
### Best Gap Insurance Companies
We conducted an industry-wide review of the top insurance providers on the market. Below are the top five companies that provide gap insurance coverage. When shopping for car insurance, we always recommend comparing car insurance quotes from a few different providers.
#### Travelers
– Our rating: 9.5 stars out of 10
– Year founded: 1853
– Headquarters: Hartford, Conn.
– Better Business Bureau (BBB) rating: A
– AM Best rating: A++
– Travelers offers loan/lease payoff insurance. To be eligible for the coverage, you must be the original owner of the financed or leased vehicle. Additionally, you must have purchased the vehicle from a new car dealer. Travelers gap coverage does not cover any carry-over balances, lease penalties, overdue payments, or extended warranties.
#### Liberty Mutual
– Our rating: 9 stars out of 10
– Year founded: 1912
– Headquarters: Boston
– BBB rating: A-
– AM Best rating: A
– Liberty Mutual’s gap coverage is useful if you have negative equity on your vehicle, which means you owe more than the car is worth. A Liberty Mutual gap insurance policy can help pay the difference between your car’s value and your total loan amount if your vehicle is totaled or stolen. It doesn’t cover engine failure, deductibles, or medical costs.
#### Nationwide
– Our rating: 9.1 stars out of 10
– Year founded: 1926
– Headquarters: Columbus, Ohio
– BBB rating: A+
– AM Best rating: A
– If you already have Nationwide car insurance coverage on a financed vehicle, your lender may require you to carry gap insurance as well. A Nationwide gap policy covers negative equity and theft, but doesn’t cover deductible costs, engine failure, death, lost wages, or bodily injuries.
#### Allstate
– Our rating: 8.8 stars out of 10
– Year founded: 1931
– Headquarters: Northbrook, Ill.
– BBB rating: A+
– AM Best rating: A+
– After a total loss, you can file a claim on your Allstate® Guaranteed Asset Protection (GAP) plan to ensure the balance of your loan is covered. The plan doesn’t offer an immediate payout but will reimburse you for all car payments made out of pocket after your accident or theft. To get the Allstate GAP plan, you need to add it to your policy when financing a new vehicle. It’ll cover up to $1,000 of your deductible and is available for loan terms of up to 96 months.
#### The Hartford
– Our rating: 8.2 stars out of 10
– Year founded: 1810
– Headquarters: Hartford, Conn.
– BBB rating: A+
– AM Best rating: A+
– The Hartford recommends buying gap coverage immediately when financing or leasing a vehicle. This coverage is only available if you’re the original owner of a new car, and The Hartford requires policyholders to also purchase comprehensive and collision insurance. It isn’t applicable to motorhomes or travel trailers.
It’s important to note that insurers only sell gap coverage as an add-on to your existing policy. This means that you can’t mix and match — if you have a Travelers car insurance policy, you can’t purchase gap coverage from Liberty Mutual.
### Where Else Can I Find Gap Insurance?
Though many car insurance companies offer gap insurance, you can get the coverage from a few other places. Most car dealerships offer gap coverage, though you’ll likely pay a lot more than if you buy it from an insurance provider. Some auto lenders may also offer gap coverage, but again, it may be more expensive.
### How Much Does Gap Insurance Cost?
In most cases, adding gap insurance to your full-coverage policy will increase your car insurance premium by around $40 to $60 per year. However, the cost of gap insurance varies from company to company. The best way to find out what you may have to pay for the coverage is to call your insurance agent and verify that your insurer offers gap insurance.
### Who Needs Gap Insurance?
If you fall into one of these categories, you may want to consider buying a gap insurance policy:
– Those who paid a small down payment: A lower down payment means you owe more on your vehicle.
– People who lease a car: If your lease doesn’t come with gap insurance, you should consider gap coverage as leases have low monthly payments, and thus, a larger gap between the amount owed and the value of the car.
– Drivers who have other products on their auto loan: If your loan includes other products like an extended warranty or debt from other vehicles, you’ll owe much more than the value of your vehicle.
– People who drive sports cars or luxury vehicles: Sports cars and more expensive vehicles tend to depreciate faster, so gap insurance will help you stay financially protected in the event of a major collision.
### Best Gap Insurance Companies: The Bottom Line
Gap insurance is a type of coverage that helps pay the difference between your vehicle’s value and the balance of your car loan in the event of a total loss. The best gap insurance companies are Travelers, Allstate, Nationwide, Liberty Mutual, and The Hartford.
### Best Gap Insurance Companies: FAQ
Below are frequently asked questions about the best gap insurance companies:
#### What are the cons of gap insurance?
While gap insurance can be helpful for your peace of mind, it’s another added expense to your car insurance policy. If you’re not the original owner of the vehicle, you likely won’t be eligible for the coverage. Additionally, gap insurance won’t cover your deductible costs.
#### Are there different types of gap insurance?
In the United States, gap insurance and loan/lease payoff coverage are essentially the same thing. Some insurance providers place caps on the amount it will pay out and some stipulate that you can only purchase coverage for a new car.
#### Are gap plans worth it?
Gap plans can be worth it if you’re financing or leasing a car. If your car is fully paid off, there’s no reason to have a gap insurance plan.
### Our Methodology
Because consumers rely on us to provide objective and accurate information, we created a comprehensive rating system to formulate our rankings of the best car insurance companies. We collected data on dozens of auto insurance providers to grade the companies on a wide range of ranking factors. The end result was an overall rating for each provider, with the insurers that scored the most points topping the list.
Here are the factors our ratings take into account:
– Industry standing (20% of total score): Our research team considered market share, ratings from industry experts, and years in business when giving this score.
– Availability (10% of total score): Auto insurance companies with greater state availability and few eligibility requirements scored highest in this category.
– Coverage (30% of total score): Companies that offer a variety of choices for insurance coverage are more likely to meet consumer needs.
– Cost and discounts (25% of total score): Auto insurance rate estimates generated by Quadrant Information Services and discount opportunities were both taken into consideration.
– Customer experience (15% of total score): This score is based on the volume of complaints reported by the NAIC and customer satisfaction ratings reported by J.D. Power. We also considered the responsiveness, friendliness, and helpfulness of each insurance company’s customer service team based on our own shopper analysis.
Our credentials:
– 800 hours researched
– 45 companies reviewed
– 8,500+ consumers surveyed
*Data accurate at the time of publication.
In conclusion, gap insurance is a valuable coverage option for those financing or leasing a vehicle. By understanding how it works and exploring the best insurance companies that offer gap coverage, you can make an informed decision to protect yourself financially in the event of a total loss.