Advertisement
insurance

Why You Don’t Need Gap Insurance

If you’re leasing a car, you may be on the hook for this coverage. Otherwise, just say no.

Do I need “gap insurance” when I buy a new car? The dealer is offering it for about $600.

You may be required to include gap coverage in your monthly payments if you lease a vehicle, but otherwise you’re better off self-insuring.

 

Gap insurance covers the difference between the amount you owe on your car loan and the amount your auto insurance company will pay out if you total the car. Car dealers and lenders often offer gap insurance for $500 to $700, and you’ll pay interest on that amount if it’s rolled into the loan.

Advertisement - Article continues below

Gap insurance sounds like a good idea because your car loses value as soon as you drive it off the dealer’s lot. So if you make a low down payment (less than 20%) and wreck your car soon after buying it, you could owe more on the loan than the car is worth. And if you have a long-term loan -- 48 months or longer -- it could be quite a while before your loan balance is less than the car’s value.

If you’re uncomfortable with that risk, you may be able to add gap coverage to your auto policy for less than the lender charges for stand-alone protection. You’ll typically pay 5% to 6% of the cost of your collision and comprehensive coverage for gap insurance, says Des Toups, managing editor of CarInsurance.com -- or $50 to $60 per year if collision and comprehensive cost $1,000.

Advertisement
Advertisement - Article continues below

You can drop gap coverage when your loan balance is close to your car’s value. Check values at KBB.com or Edmunds.com.

Advertisement

Most Popular

HSAs Get Even Better
Financial Planning

HSAs Get Even Better

Workers have more options with flexible spending accounts, too.
July 2, 2020
2020 Stock Market Holidays and Bond Market Holidays
Markets

2020 Stock Market Holidays and Bond Market Holidays

Is the market open today? Take a look at which holidays the stock markets and bond markets take off in 2020.
July 1, 2020
Find a Great Place to Retire
happy retirement

Find a Great Place to Retire

Our cities provide plenty of space to spread out without skimping on health care or other amenities.
July 2, 2020

Recommended

Applying for Disability Benefits During a Global Pandemic
insurance

Applying for Disability Benefits During a Global Pandemic

It can take months or even years to get approved for Social Security Disability Insurance (SSDI) benefits in the best of times. Needless to say, now i…
June 24, 2020
13 Reasons You Will Regret an RV in Retirement
retirement

13 Reasons You Will Regret an RV in Retirement

RV-loving retirees talk about the downsides of spending retirement in a motorhome, travel trailer, fifth wheel or other recreational vehicle.
June 8, 2020
Finding Affordable Health Care Now
insurance

Finding Affordable Health Care Now

The pandemic has caused millions of people to lose their jobs — and their health coverage. Here’s a guide to finding affordable insurance.
June 4, 2020
Health Insurance Options Exist for the Newly Unemployed
insurance

Health Insurance Options Exist for the Newly Unemployed

Special enrollment periods for Obamacare plans and expanded Medicaid coverage will help people who are suddenly out of work because of the coronavirus…
April 17, 2020