Gap Insurance in Michigan: Everything You Need To Know In 2024
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New cars tend to lose approximately 20% of their value in the first year of ownership. If your car is totaled and you owe more on your loan than the car’s value, you could be liable for the difference.
This is where gap coverage offers protection for Michigan drivers. In my decades-long career in car insurance, I’ve found that many people don’t fully understand how gap insurance works. For a complete overview of gap insurance, read on.
Key Takeaways
It pays the difference between what you owe on your car and what it’s worth if your vehicle is declared a total loss.
Coverage is available either on its own or as an add-on to your car insurance.
Opting to buy gap coverage from your vehicle insurance company is budget-friendly.
What Is Gap Insurance?
Guaranteed Asset Protection (GAP) insurance, in essence, covers the difference between your vehicle’s actual cash value and what you still owe on it through a lease or loan. When your vehicle is declared a total loss in an accident, your insurer typically pays out based on its current market worth, which might be less than your outstanding loan amount.
CCC, an insurance software company, conducted a study showing that 20% of vehicles have been totaled rather than repaired since 2018. Given the average price of new vehicles in 2023 was $48,759, it’s easy to see how you could end up owing more than your vehicle’s value, particularly if your down payment was minimal.
Note: A vehicle is totaled when the repair costs exceed its value. Insurance companies usually utilize resources like Kelley Blue Book or NADA to calculate the real cash value of your car.
How Much Does Gap Insurance Cost?
Forbes Advisor reports that gap insurance costs around $61 annually on average nationwide. In Michigan, prices can range from $24 to $360 per year, depending on whether you choose an insurer or a dealership.
Opting for insurance directly from your insurer is generally a more economical option, despite state regulations capping dealership prices at 5% of the loan or lease amount.
Do I Need Gap Insurance In Michigan?
Gap insurance isn’t mandated by Michigan law. Specifically, Michigan law prohibits making gap insurance a requirement for a lease or loan. However, experts still recommend purchasing this coverage if you lease or finance your car, especially in certain situations.
It’s prudent to add gap insurance to your auto policy if you lease or finance your car, as it’s generally affordable. But for those on a budget, skipping the coverage might be feasible if you don’t meet any of these conditions:
- You made a down payment of less than 20%.
- Your finance terms are 60 months or longer.
- Your vehicle depreciates faster than average.
- You rolled over a previous loan balance onto your new car loan.
How Does Gap Insurance Work?
Explaining how gap insurance functions, let’s consider this scenario: You buy a $40,000 car, pay $5,000 upfront, and finance the rest. Later, you have an accident. If your car’s current value is $20,000 and you owe $23,000, there’s a $3,000 shortfall.
Without gap insurance, you’d have to cover this amount yourself. But with gap insurance, your insurer would cover the $3,000.
Please be aware: Gap insurance is meant for situations where your car’s loan amount surpasses its current market value. Once your loan is completely settled, the insurance won’t compensate more than the car’s actual cash value.
Where Can I Find Gap Insurance In Michigan?
You have the choice of buying gap insurance separately or attaching it to your car insurance policy. Attaching it to your car insurance tends to be cheaper, usually costing between $40 and $60 per year, whereas standalone policies can range from $500 to $700.
Note: It’s common for dealerships to fold gap insurance expenses into your loan, resulting in higher overall costs, particularly when interest is taken into account. A preferable method is to add it to your car insurance policy and remove it once the loan is fully paid.
Gap Insurance VS Full Coverage
Both gap insurance and full coverage expand the potential reimbursements from your insurance provider, yet they provide different types of coverage. Gap insurance bridges the gap between your car’s actual cash value and the balance of your lease or loan.
On the other hand, full coverage includes comprehensive and collision coverage, which pay for damages caused by incidents such as fire, theft, vandalism, and collisions with animals. Collision coverage specifically covers repairs resulting from collisions with other vehicles or objects.
| Gap Coverage | Full Coverage | |
| Applicable When the Car is Financed/Leased? | Yes | Yes |
| Required? | No | Yes, if the vehicle is financed/leased |
| Cost? | $61 per year | $2,542 per year |
| Deductible Apply? | Yes | Yes |
How To Buy Gap Insurance In Michigan?
For gap insurance in Michigan, adhere to these steps to complete your purchase.
Make a choice between getting gap coverage on its own or adding it to your car insurance, and then evaluate the costs of each.
Find a reputable company licensed to offer gap insurance in Michigan. Alternatively, you can opt to purchase this coverage from the dealership when you finalize your lease or loan paperwork.
Before choosing gap insurance from your vehicle insurance company, call to ensure it’s part of their offerings.
Make sure your leased or financed vehicle is insured.
FAQs
What does gap insurance cover in Michigan?
Gap insurance pays for the difference between your car’s value at the time of loss and what you still owe on your lease or loan. If you lack this coverage, you’d need to cover this expense yourself.
How much is Gap insurance in Michigan?
In Michigan, how much you pay for gap insurance depends on whether you buy it as a standalone policy or add it to your auto insurance. Standalone policies usually cost a flat fee of $500 to $700, while insurers typically charge between $40 and $60 per year when included in an existing policy.
Do I need gap insurance if I have full coverage?
Leasing or financing your car typically means you need full coverage as per most lenders. While gap insurance isn’t mandatory in these cases, it’s usually recommended.
