The Pros and Cons of Gap Insurance

When owning or leasing a car, one of the biggest considerations to be made has to do with car insurance. Who will you insure it with? How will it be insured and what will be covered? What are the monthly costs? Are there any special clauses to be aware of? There are so many rabbit trails to go down when considering car insurance. One of the options available is known as gap insurance where gap stands for “guaranteed auto protection”. Essentially, when a person has an accident where their leased car is totaled, the insurance policy would cover any payments should the value of the loss be more than what the person currently owes on the car. No matter what happens, the gap insurance policy would cover any outstanding costs the policy holder may be responsible for in the event of the accident. For some, this may be the correct policy to go with. The director of insurance for the consumer federation of America in Washington D.C., J. Robert Hunter, put it best, “The two most important things to look at when choosing an auto insurance company are the price and the claims service,”

Before one can make a decision about their car insurance, they must understand the details associated with a policy. This is why we connected with a few experts to understand the pros and cons of gap insurance.

Pro: Zero dollar deductible

Datha Santomieri is the co-founder and vice president of Steadily, a brand offering landlord insurance. She suggests going with a gap insurance policy as it provides no deductible.

“If you’ve ever dealt with an insurance deductible of any kind, you know that it can be a very confusing concept. You’re not entirely sure what money covers what or how much of it. The beauty of a gap policy is that this confusion goes right out the window. Gap policies have a zero dollar deductible. So, if you do end up in a bad automobile situation, you can walk away from the problem with very minimal, if any, expenses that you wouldn’t have had otherwise. Save yourself the future money and worry by going this route.”

Pro: Reduction in down payments

Everyone loves saving money especially when it comes to expensive or regular payments. Acre Gold is a business providing subscription options for saving gold. Their head of operations, Jared Hines, advises taking a look at gap insurance for this reason.

“A gap insurance policy covers the difference between the value of a vehicle and what the owner currently owes on it. In a vacuum, this allows a person to own a vehicle even if they don’t have the finances to make that ownership free and clear. Except, gap policies don’t exist only within a vacuum, provided you qualify for the policy. If you decide to move forward with a gap policy when purchasing a vehicle, it would actually allow you to hold on to some of your cash while still securing the keys to the vehicle.”

Pro: Risk management

Embroker specializes in simplified business insurance. Their founder and CEO, Matt Miller, considers the ability to be wise with personal capital to be one of the advantages of gap insurance.

“Regardless of how you purchase a vehicle, it’s your money on the line. If something happens, you assume some level of responsibility which could result in you losing far more money than you ever expected to in a car related situation. Gap insurance takes some of this concern away. If your car is stolen or totaled, the company endorsing the policy will fill in the financial gap that was left when the gap policy went into effect. Instead of losing thousands of dollars because you put a large sum of cash into your vehicle, your insurance has allowed you to avoid this issue altogether.”

Pro: Potentially nicer car

Daniel Sathyanesan is the CEO and founder of Winden, a brand offering a variety of online banking options. He cautions others to turn away from gap insurance as it could lead to a nicer ride.

“I do understand the biggest cause for gap insurance is so that leased cars are able to be driven without stress from those in the vehicle or whoever sold it. However, it does provide people with a benefit that they may not realize. The physical limitations of your bank account may keep you from obtaining the car of your dreams or simply reliability. Gap insurance makes either of these things totally possible. Don’t sell yourself short when there are options out there for you.”

Con: What are the odds?

Depending on geographical location and driving frequency, some people are more prone to accidents than others. Insured Nomads is a business providing insurance specific to travelers. Their COO, Brett Estep, proposes being aware of this.

“Somewhere along the line I heard that the average person will have a car accident once every 15 years. If this is true, that’s roughly three or four accidents in a lifetime. That being said, this number could vary if the person spends more time behind the wheel or if they live in an area with a high volume of traffic. Gap insurance is your safety net in case of an accident but if there’s no accident to be had, the insurance serves no purpose. You should be sure to analyze your driving situation before making a decision about this.”

Con: Coverage

Flatline Van Co. specializes in parts and accessories for adventure vans. Their co-founder and CEO, Kevin Callahan, believes the items or cases not covered through gap insurance may push consumers away.

“It doesn’t matter where you got it or what it covers, no insurance policy covers everything. It’s just not realistic and doesn’t make much sense in many instances. It’s the same with gap insurance. For example, if someone you have an existing relationship with borrows the car without your permission and the vehicle is totaled, the gap insurance will not make up the difference. Also, these policies tend not to provide coverage for very high-end vehicles. Obviously, gap insurance wouldn’t have the popularity it does if it wasn’t applicable but it’s  important to note that it’s not for everyone.”

Con: Additional expense

Benjamin Meskin is the president of Cabrella, a brand offering insurance for shipping luxury items. He advises others to simply take notice of the cost of a gap policy.

“Sadly, gap insurance isn’t some box you can tick when registering for traditional car insurance or your license. The reality is that for additional coverage, additional expenses are required. This might suit the needs of some consumers who have a car with a vast difference between value and amount owed. But, cars in general are expensive between maintenance, gas, and traditional insurance -  It may not make financial sense for someone to add another car-related cost to their monthly budget. Only you can decide if gap insurance is worth the additional money.”

Con: Necessity

Car salesmen have a reputation for making the most of any sale. Navi is a platform providing users with the ability to compare wireless providers. Their co-founder and chief customer officer, Patricio Paucar, considers it wise to be aware of this as well as pertinent information before making a decision.

“The truth is, not every vehicle or plan for purchasing a vehicle needs gap insurance but your salesman might try to sell it to you anyway. It’s absolutely necessary to be able to discern whether or not your next car purchase needs gap insurance for this reason. If you have all the details about the value of the car you’re purchasing and how the loan is being structured, it should be easier to make this deduction.”

Above are ample reasons for and against gap insurance. Hopefully, the expert advice will prove useful when finalizing a choice. But, don’t let it consume you. Author Diane Chamberlain summed this up, “I think the important thing about making a decision is just to make it. Otherwise you can go nuts thinking about the pros and cons.”