Is gap insurance worth the cost?

UPDATED: Mar 8, 2011

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UPDATED: Mar 8, 2011Fact Checked

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Asked March 8, 2011

1 Answer

Whether or not GAP insurance is worth the cost depends on the value of the car, and the balance you owe to the dealership or car lot. GAP insurance has one use, and that is to pay off the remainder of a lease or lien on a vehicle if that vehicle is totaled for less than the amount owed. For example, if you still owe $2500 on a car and it is totaled for only $1950, you would be left owing $550 out of pocket unless you had GAP insurance.

If you are comfortable with paying the balance owed on a vehicle out of pocket, then GASP insurance has nothing to offer you, but be warned that a vehicle depreciates rapidly once it is driven off the lot, and the amount you receive when it is totaled may seem painfully small. As a rule of thumb, when the remaining value of the loan is more than $1000, having GAP insurance is a low-cost way to avoid being left in a financial crisis. For new and leased vehicles, GAP insurance may be required as a condition of purchasing the car, so that the car lot is guaranteed that they will receive their money.

In many situations the dealership is the named recipient of a GAP insurance claim, bypassing the policyholder completely and simply nullifying the remaining vehicle balance. Modify your GAP coverage as needed to keep it in line with the amount owed on the car. Even if GAP is not required, it is much more likely to become a blessing than an expensive burden.

Answered March 8, 2011 by Anonymous

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