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Discussion Starter · #1 ·
I'm wondering what others think of this: GAP Insurance? (for if your car is destroyed, it covers the gap between the value and what the insurance pays out.)

How do people feel about getting this with their loan to protect themselves? How is it generally calculated?

Normally, I wouldn't, but with the last car, it came close and I almost had to pay because the other guy didn't have insurance (and he hit me and destroyed my other Focus--hence the reason I have to get a new one--and am asking about GAP insurance).
 

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Bunneh Fanatic
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Depends on how much of a down payment you make on your new car purchase. If you put a ton of money down (at least half of its value) and you expect to pay the car off fairly soon, it's probably not worth the added expense in coverage. But if you only put down like $2000 and are stuck paying it off for the next 3 years or whatever, then yeah Gap will save your ass in case of an accident.

As annoying as insurance companies are sometimes, their agents generally offer good advice when it comes to stuff like this. They'll look at how much you put down and how much you still owe and whether you'd get a reasonable amount if you make a total loss claim etc. In my case it wasn't because I put $11k down on my car when I first bought it (and only had $8k in payments left).
 

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ya its worth it imo. Here it runs 600 bucks but if you finance anything over 48 months if anything does happen its worth way more than that. i always get it, but thats just me
 

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Many car insurers offer "new car replacement" instead of "actual cash value" in the first year which kills most of the need for GAP insurance. Even if you pay cash for the car, or pay down the loan, you still have this risk of loss - the insurance is not going to pay out what you paid in cash and you are still out the money. Infact, you have the same loss on paper even when you keep the car, and is also realized when you sell the car. You could just buy less of a car (1-2yr old used car, if your car is 1-2yr old) with the insurance payout and keep paying your regular payments.

If you can self insure this risk I would suggest against GAP insurance. If you do need it, buy it elsewhere than the dealer.

GAP on a car is like PMI on a mortgage.. except that lenders require PMI since the amounts are usually a lot more and state laws protecting borrowers from lenders with foreclosures. With a car, they feel they can go after you for the small difference. You don't want it unless you really need it, and if you really need it maybe you shouldn't have bought the car/house in the first place.
 

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i have two cars got gap with both, one is paid for so i never had to use it for my focus, but if anything happens to my vue gap would be saving my ass
 

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I'm wondering what others think of this: GAP Insurance? (for if your car is destroyed, it covers the gap between the value and what the insurance pays out.)

How do people feel about getting this with their loan to protect themselves? How is it generally calculated?

Normally, I wouldn't, but with the last car, it came close and I almost had to pay because the other guy didn't have insurance (and he hit me and destroyed my other Focus--hence the reason I have to get a new one--and am asking about GAP insurance).
You've got the description of what 'Gap' insurance is - incorrect.

Regular insurance is supposed to cover the 'market value' of a vehicle, if totalled. Gap insurance covers the difference between that market value, and your loan payoff - if you are upside down on your loan (you owe more than the car's worth).

I would say, that if you put down less than 15% on a car, you need gap insurance.
 

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I hate insurance companies, you can go claim free for years, paying them thousands of dollars. Then you have one claim for a few hundred and they want to raise your premium. I think they ought to pay off your loan if you're in an accident, shouldn't take an additional policy IMHO.

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The way car values drop like a rock in today's economy I think GAP is a good idea if you don't put a bunch of money down so your loan is less than the car's value. Check around. My CU sells GAP for about $300 on a $20K loan and this also includes $1,000 cash towards the purchase of a replacement vehicle. When I bought my last car my State Farm insurance agent told me that State Farm also does car loans. Their rates were very competitive and they included GAP with their loan.
 

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You've got the description of what 'Gap' insurance is - incorrect.

Regular insurance is supposed to cover the 'market value' of a vehicle, if totalled. Gap insurance covers the difference between that market value, and your loan payoff - if you are upside down on your loan (you owe more than the car's worth).

I would say, that if you put down less than 15% on a car, you need gap insurance.

Down payment aside, you need to know the term of the loan too. Lets say they put 5% down but it's a 24 month loan. Then GAP probably wouldn't be needed.


I guess to get a good answer we need more info.
What insurance company? ... for starters
 

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I hate insurance companies, you can go claim free for years, paying them thousands of dollars. Then you have one claim for a few hundred and they want to raise your premium. I think they ought to pay off your loan if you're in an accident, shouldn't take an additional policy IMHO.

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Well I think gas should be 39 cents a gallon, but that ain't gonna happen either. An insurance policy is a contract between the owner of the car and the insurance company. What's covered is what's in the policy. The insurance covers the car - not the loan.
 

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Discussion Starter · #11 ·
I'm quite aware that the insurance covers the car and not the loan. But GAP insurance is generally not offered with insurance policies, but rather by the lending institutions (or the dealer itself--which I wouldn't go with).

Reason for asking is because I can get it with my already low APR loan from the bank. It would probably add (I think they said) about $10 per month to my payment (if even that).
 

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Discussion Starter · #12 ·
Why wouldn't you need GAP insurance if you put down 5%?

Let's say you buy a $20.000 vehicle, and you put down 5%. That's only $1,000. So, to the laon company, you still owe $19,000. But once you drive it off the lot, it will probably drop to about $18,000 in value (or if you drive it for a month and put 500 miles on it, because it's now considered used). So, if you get in a wreck, and you have a $250 deductable. What if the insurance company only says that it's worth $18,000. That's my point. Now, while $1,000 isn't the end of the world, you would be stuck paying the difference between $18,000 and $19,000 to pay off the loan. Your insurance company (as I understand it) will pay off the loan up to the fair market value of the vehicle minus your deductable.

So, yes if you put down $3,000 more and have the misfortunate accident above, then you're OK. But if you only put down $500, you might have problems.

So, I can see where in some cases it makes no sense, but in others, it does. Yes, I probably wouldn't do it for a $3,000 car, just because for me, I could come up with $3,000 if I needed to in a pinch.
 

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Discussion Starter · #13 ·
You've got the description of what 'Gap' insurance is - incorrect.

Regular insurance is supposed to cover the 'market value' of a vehicle, if totalled. Gap insurance covers the difference between that market value, and your loan payoff - if you are upside down on your loan (you owe more than the car's worth).

I would say, that if you put down less than 15% on a car, you need gap insurance.
Thank you... that's about what I was considering. Because once your ahead of the depreciation curve, then as long as you make your monthly payments, I'd think that you would stay ahead of the curve. Yes, cars do depreciate faster when they are only a few years, but once you make it past that, it doesn't matter much because obviously you'll owe far less than what it's worth.

I just wanted to see what others thought about it. I've had it in the past on certain vehicles (mainly when I was in a situation where I couldn't afford the extra $500 for the "what if" situation and didn't want to risk it), but also I've never had to use it either.
 

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Here's the thing. On average, insurance is a bad deal. It has to be, that's why the insurance companies make money.

So, when you buy the insurance, you are taking a small high-probability loss to protect against a devastating one.

The question is, for you, in your present financial situation, if you were out every penny of the gap next week, what kind of financial hardship would that cause you?

If that loss would be insignificant, then the insurance is a bad idea for you. If the loss would be catastrophic, then I would say that you should get the insurance.

I don't do gap insurance myself, but that's because I don't like the idea of spending enough on a car that that would be a serious financial hardship. And besides, I typically have enough of a down payment that I would never be "underwater" -- though with a 0%0% to maybe 4% loan, I could see why you'd finance every penny you could.
 

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Bunneh Fanatic
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The money you spend on insurance in your lifetime could easily exceed the value of the checks they write to you in total loss claims. On the other hand I guess it does help protect against lawsuits, hospital bills, and other liability issues. Unfortunately the average person ends up paying more than they get back, because most of us don't get into a car accident every single month.

Stupid insurance story time! As a contractor I don't get any health benefits whatsoever. But my agency offers health/dental benefits through a third party insurance company. I signed up for dental coverage and got 2 root canals done within the past few months. I was recently informed that my first year only covers me up to a certain amount and that I was nearing that limit.

So I call them up and ask them why I should pay $35 a month for coverage I won't be getting since I'm about to exceed my annual allowance anyway. I asked her if I could just cancel my account once I've reached that limit. The lady over the phone started stuttering and kept saying something along the lines of, "Uhh well uhhh ummm I guess you could cancel your account if you wanted..." And so I thanked her and hung up. Unbelievable.

I felt kind of bad about it because in a way I got more money back than I put into my policy. But sorry, why the hell should I pay a monthly fee when I know I won't be covered anymore until that amount replenishes next year? ... [dunno]

I'm not recommending that everyone run out and cancel their insurance policies. Obviously that's illegal with car insurance. I just wanted to share how retarded some policies are and how easily they can empty out your wallet if you don't pay attention. It pays to read the fine print.
 

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Discussion Starter · #16 ·
I guess looking at the circumstances, maybe i should skip out on the GAP insurance. I received a decent payout from the insurance company on the previous car (the Red 2010 Focus), which actually I ended up with more than I had paid for the car when it was new.

I feel sort of bad for the other guy, because he didn't have insurance, and had to take out a loan to pay off the settlement between my insurance company and hiim (long story short, he spun out trying to avoid hitting a deer, and ended up hitting the front end of my car--basically compacting the engine compartment inward about half way, which only had about 5k on it).

So, in some ways, I'm happy (that I'm not stuck paying for something I no longer own---the car). But at the same time, I feel bad for the guy. But it was his choice to drive without insurance, I guess. So I guess if I put the extra money from the insurance company to the down payment, I could stay on top of the loan---not owing more than the car is worth).

I think too where people get in trouble is when the refinance to get a lower payment, but usually have to take a higher rate, or they just have a higher rate to start with. That's partially why I never used Ford Motor Credit (unless they can offer something comparable to the market, which is almost never). I never do refinancing, except for if I end up really hate the lending institution, which has happened once or twice. but in all, I've never really been up-side-down in a loan, and I guess I've never had to use any of the GAP insurance policies I've had--knock on wood).
 

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To put it simply.....

If you buy a new car and put very little down (say 15% or less) - you need GAP insurance (unless for some reason you have money in the bank- but if you do, why didn't you put more down?) You have to at least stay ahead of the 'market value' on the vehicle. Remember - just driving a new car off the lot, you probably lose at least 5% right there. And if you didn't get a particularly good deal, your loss could be worse.

If you buy a used car, a lot depends on how good a deal you get, compared to the 'market value' (also assuming a very low down payment..) If your loan payoff is 90% of the 'trade-in' book value or higher, you probably should get GAP coverage.

Also remember, your 'principal' on your loan does not go down much every month in the early part of your loan - most of your monthly payment is going to interest.
 

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Discussion Starter · #18 ·
Well, I've compared my numbers with the industry, and it's a good deal. Now with my down payment, I guess there shouldn't be an issue because I plan to put down around $4000 (and the car was sold at a price of around $21,000 out the door, so I guess I'm pretty safe in those respects.

It just sort of puzzles me that my insurance company came up with a value of about $20,000 for my 2010 Focus with 5k on it, when all I could find on the Internet was about $18,000 at very best. Good thing they didn't have to pay out a dime. Top it all off, I only paid $15,500 for the car, plus tax. Like I said in another thread, I sort of feel sorry for the other guy who has to essentially pay off my car loan and then some. But I guess I can look at it this way: I got my money back, my down payment, back and a few extra thousand to use on the new car--which is what my insurance company strongly suggested I do with the spare cash--obviously). (Actually, he reached a settlement with my insurance company and only has to pay about $18,500 in the end--but still that's a little more than I paid for the car. I'm not complaining, I'm just saying that sometimes when you do stupid stuff you get screwed, and in cases like these, someone wins and someone loses big time).
 

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Discussion Starter · #19 ·
I'm not an evil person either. I just asked my insurance company to have him pay out the fair market value of the car, which I thought was about $15,000... they seemed to think otherwise and that's what they demanded from him, with documentation. I guess since he didn't have insurance, he really didn't have much of a protest to put up, and to top it all off, he has additional fines to pay to the state for driving without insurance.
 

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It's not really your issue to worry about what the other guy has to pay back to your insurance company. Insurance companies know that they are not going to get back every dollar they pay out, and that is already factored into your insurance premiums.

Seems like you benefited from a lenient total loss adjuster.
 
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