If you’re planning on purchasing a new car, you’re probably trying to find all the possible ways to save enough money so you can purchase the one you want. One of the ways you can save money is being wary of typical car salesperson tactics when it comes to gap insurance! In this article we are going to answer some commonly asked questions regarding what gap insurance is, why you need it, and how much it will cost when purchasing your new car!
What’s the insurance hack?
Here’s the hack. When you go to purchase your new vehicle, the car salesperson is most likely going to offer you gap insurance coverage. What they won’t mention, however, is that many insurance policies offer this same insurance coverage at a much cheaper price.
So, when you’re purchasing your new car just remember that you have the power to turn down the salespersons offer and save yourself some money. Give us a call or send us an email if you’d like to prepare yourself for this!
What is Gap Insurance Coverage?
Gap insurance is an optional add-on coverage designed to help cover the “gap” between the amount you owe on the car and the car’s actual cash value (ACV) in the case of a covered accident.
What is actual cash value (ACV)?
Wait, actual cash value? What’s that? Well, we’ve all heard the saying that your new car loses value as soon as you drive it off the lot. In fact, cars can depreciate around 20-30% within the first year of ownership.
So, here’s an example: If you purchase an $18,000 vehicle and get into an accident 8 months later, the actual cash value of your vehicle will amount to how much your vehicle is worth at the time of the accident, not when you purchased it. Assuming 20% depreciation, this means that the $18,000 vehicle you purchased 8 months ago could actually have dropped to an ACV of $14,400. This is where having gap insurance comes in to save the day by covering the “gap”. More on this later. Wondering how ACV is calculated? There are actually many different factors that depreciate the value of your car including mileage, age, physical condition and many more.
Now that you have an idea of what gap insurance is, you’re probably wondering how it’s possible to save money. After all, it’s an optional coverage. Stick with us.
Do I actually need gap insurance?
At this point you may be thinking to yourself, “Wait a minute. I have auto insurance to cover damages to my vehicle, so what should I be worried about? Why would I need gap insurance?”
To properly answer these kinds of questions, having a basic understanding of what auto insurance policies are actually designed to do is necessary. In short, your auto insurance is designed to put you back to where you were, in terms of the vehicle, before the loss. Auto claims adjusters, however, do not typically consider anything that has to do with your loan when determining how much you will get for your car. They determine what the car is worth (the vehicle’s current ACV we mentioned previously), and then they pay you for the vehicle. This is, of course, assuming that you are carrying basic physical damage coverage on the car.
Remember, your insurance company is only going to pay for the ACV of the vehicle. As we discussed earlier, the ACV amount is oftentimes less than the financed amount which is why you need GAP insurance!
How much does gap coverage cost?
The good news is that this insurance hack can save you money while also protecting you. While the average cost of gap coverage is around $400.00 to $600.00 from the dealer (we’ve heard even higher numbers) the average range on an auto policy is much lower at around $20.00 to $40.00 per year, according to Wallet Hub. Crazy right??
Extra coverages and prices are definitely a concern to be worried about but the most important takeaway from this article is to call your agent BEFORE you purchase your new car. There are many ways car salespeople try to upsell you on extra coverages and packages that you either don’t need or are way overpriced. After you’ve spoken with your agent and go to purchase your new car, it’ll be a good feeling getting to tell the car salesperson who tries to upsell you on gap insurance coverage – “No thanks, I’m going to get that on my auto policy for 40.00 instead!”.
Important Things to Note About Gap Insurance
Now that you know how GAP insurance works, what it covers, and are considering adding it to your auto insurance policy, lets discuss what this optional add-on does not cover.
- Damage to other property or bodily injuries resulting from a car accident.
- Your deductible.
- Engine failure or any other mechanical breakdown.
GAP insurance only covers damage to your vehicle and is not designed to cover damages to property or injuries to another person caused by the accident.
Unfortunately, gap coverage does not cover your deductible as you will still need to pay it.
Gap insurance does not cover any mechanical repairs on your new vehicle. It only comes into play in the event of a total loss from a covered accident.
There are many other factors that go into GAP Coverage that may or may not apply to you. In fact, gap insurance isn’t available on all insurance policies, although it is on most. Our advice would be to call your agent to learn more about the details on your policy before you go to the dealer.
Is gap insurance worth it?
If you’re thinking about purchasing a new car then let us be the first to tell you that gap insurance is worth it! GAP insurance is just one of many products we can offer you that a large insurance company may overlook, or an auto dealer might overcharge you for.
Give us a call if you are considering buying a new car. We are happy to discuss the coverage in more detail and will help determine if you can buy it for the vehicle you are purchasing. Our goal is to build a coverage plan with you, providing you the information to make informed choices. Having that piece of mind in knowing what you are buying is definitely worth the call!
PNW Insurance Group is an independent and local insurance agency here in Puyallup, Washington which means we are able to find the most competitive prices for you. The best part is that we can help save you lots of time and money because it doesn’t cost any extra for you to purchase your insurance through us! Give us a call or send us an email and we’ll get you started today!