When should you get gap insurance?

Filed under: Classic News |
If you’re fortunate enough to be able to purchase a new vehicle with cold harsh cash, you don’t need to worry about the depreciation of your new car. But, if you’ve taken out a loan to finance your new wheels, you need to consider taking additional steps to protect your investment if something happens to your vehicle – enter: gap insurance.

Gap insurance is a form of car insurance that covers the gap between the amount you still owe on you car loan and your car’s appraised actual cash value at the time of the accident.

Whilst purchasing gap insurance isn’t a legal requirement, it can definitely be useful if you’re in a costly accident. This can be especially true if your car holds its value – like a classic car.

When to purchase gap insurance?

You can purchase gap insurance anytime after you’ve purchased your car. However, true gap insurance must be purchased within a very short time frame, usually within 30 days of your new purchase.

As new cars depreciate in value as soon as they’re driven off the forecourt, you shouldn’t feel pressured to invest by the car salesmen when you’re getting your new car.

When’s the best time to purchase gap insurance?

Whilst you can purchase gap insurance anytime, it is best to purchase gap insurance when you purchase your new car – although this doesn’t have to be with the dealership. Take the time to consider gap insurance, but don’t procrastinate. It is worth bearing in mind that certain companies have different guidelines for purchasing gap insurance, so it’s a good idea to decide sooner rather than later whether you need gap insurance.

If you have an extended repayment plan, your vehicle might depreciate faster than you can pay off the loan. In which case, a financial advisor will be able to advise you of the best course of action.

What’s the difference between gap insurance and loan/ lease payoff?

Loan payoff coverage is similar to gap insurance, but loan/ lease payoff has more limitations. Loan coverage tends to only cover a percentage of your car’s actual cash value (ACV) at the time of the crash. This typically tends to be around 25% of the value. Gap insurance tends to be more widely available and is offered by more lenders and insurance providers compared with loan/ lease payoff.

However, loan/ lease payoff coverage can be purchased at any time, and is easier to get on a used car, whereas gap insurance is most common on new cars.

Whatever form of insurance you choose, make sure you take the time to weigh up the costs, and seek additional expertise if necessary.