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Is Gap Insurance Worth the money?
Nicholas Hinrichsen - Published: September 15, 2023
What is gap insurance and is it worth the money on a used car?
If you bought GAP insurance from a dealership its NOT worth the money. Here are three reasons GAP insurance is NOT worth the money.
Reason 1: Gap Insurance is not worth buying from a dealership: It's WAY overpriced and available elsewhere. GAP Insurance is typically marked up 500% or more. Its available for much cheaper from your insurance company, or through your local credit union at cost.
Reason 2: Gap Insurance won't be need for a good portion of the loan: GAP insurance typically protects the value difference between your current loan balance and the vehicle's fair market value. If you've been paying for you vehicle for 3 years or more, there's a good chance that the vehicle is worth well more than the loan. Therefore, even if you wreck the vehicle GAP insurance won't pay a dime. So you're often left with paying for insurance over the loan life despite the fact that the insurance is only worthwhile during the beginning of the loan.
Reason 3: Gap insurance cost to benefit is rarely worth it unless you can't afford a large out of pocket expense. There's many insurance products that pay for "hugely outsized outcomes". Think of medical insurance, where a modest payment could offset a 0.01% chance of a $1,000,000 surgery. The reason insurance is so valuable here is that almost no individual could afford that surgery despite the low changes.
In the case of GAP insurance, the potential negative outcome is very limited in cost. Even for a brand new car the GAP between loan value and the car's current market price are rarely greater than $10,000 - and the chance of having total collision loss is still small. So with GAP insurance, you're paying a large insurance premium for a risk you may be able to take on yourself for cheaper.undefined
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Reason 1: Gap Insurance is not worth buying from a dealership: It's WAY overpriced and available elsewhere. GAP Insurance is typically marked up 500% or more. Its available for much cheaper from your insurance company, or through your local credit union at cost.
Reason 2: Gap Insurance won't be need for a good portion of the loan: GAP insurance typically protects the value difference between your current loan balance and the vehicle's fair market value. If you've been paying for you vehicle for 3 years or more, there's a good chance that the vehicle is worth well more than the loan. Therefore, even if you wreck the vehicle GAP insurance won't pay a dime. So you're often left with paying for insurance over the loan life despite the fact that the insurance is only worthwhile during the beginning of the loan.
Reason 3: Gap insurance cost to benefit is rarely worth it unless you can't afford a large out of pocket expense. There's many insurance products that pay for "hugely outsized outcomes". Think of medical insurance, where a modest payment could offset a 0.01% chance of a $1,000,000 surgery. The reason insurance is so valuable here is that almost no individual could afford that surgery despite the low changes.
In the case of GAP insurance, the potential negative outcome is very limited in cost. Even for a brand new car the GAP between loan value and the car's current market price are rarely greater than $10,000 - and the chance of having total collision loss is still small. So with GAP insurance, you're paying a large insurance premium for a risk you may be able to take on yourself for cheaper.undefined
Haven't explored refinancing yet? Take a look at our exhaustive article about all the auto refinance companies and you will realize, WithClutch.com is the only fully digital platform that lets car owners like you do so from the comfort of their own home. No need to set a foot in a bank or credit union. You can lower your rate or get cash in as little as 20 seconds.
Follow three simple steps to refinance your auto loan, get approved in seconds and save thousands in minutes.
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