Gap Insurance

I just wanted folks to know that it's possible your primary insurance carrier has a Gap Insurance option. It might save you some money over the dealer provided insurance.

Since the first few years you typically owe more than the vehicle is worth, in an event where the vehicle is totalled or unrecoverable (theft), you may wind up owing more than the insurance payoff for your vehicle. Gap insurance is a protective product that pays off what you owe (I believe it's usually capped up to 120% of the vehicle's retail value).

I checked with Allstate and it cost me $28 for 6 months of coverage ($56/year). The typical sale's pitch is that you need it for 3 years worth of coverage until your payments bring the owed amount down to what the truck is worth. So gap through my insurance policy would cost about $168 for 3 years of coverage. Since dealers charge up front, the present value calculation at 6% would be about $141 (that is, at 6% interest, $141 would be worth $168 in three years. So $141 "now" is roughly financially equal to $56/year for 3 years). Bottom line, if the dealer charged you more than $141 for gap, it's a better buy to get it from Allstate (in my case).

 

If you need Gap Insurance, you aren't saving any money at all. I would look at getting a different vehicle so you don't become so upside down in your loan you can't get out. My opinion...

 

My GAP insurance was free through my Credit Union.

 

So because of an extra $4.67/month, I should pass on my new truck?

 

I see isusww's point, but at the same time I don't think this should be a deterrent to getting the new truck. GAP insurance is like any other insurance - it covers the "what if" scenario. Even if right now you could afford to "close the gap" on an insurance payoff to your loan company, you may not be able too in several years. You just never know.

I don't see the extra ~$5/month hurting you at all.

...just my opinion, and I might be wrong.

 

GAP insurance is for leased vehicles. In the frozen North, its called waiver of depreciation. Costs you $20 per year for a maximum of two years. Its a good investment and is the only thing I'd blow $20 on if my life depended upon waiver of depreciation or Eating Steak.