Do I Need Gap Insurance If I Have Full Coverage Car Insurance?

When you are considering auto insurance and desire the highest level of coverage, you may feel comfortable knowing that you have full coverage for your automobile. But is it enough? Unfortunately, there are circumstances where full coverage will still leave you short in the event of a total loss.

This is where Gap insurance comes in. In my nine years of experience, I have helped consumers understand how this small add-on can save money in the long run. It can help you from falling short should you experience a total loss even when you have full coverage.

Gap Insurance Vs Full Coverage

Though they are both called insurance and designed to protect a driver from financial loss, Gap insurance and Full Coverage insurance are two different types of policies.

Gap Insurance

Gap insurance is an add-on to an auto lease contract that will assist a driver with paying off a vehicle should a total loss occur due to an auto incident such as theft or accident.

Full Coverage

Full Coverage is an auto insurance policy that covers a driver not only for theft or accident but includes damage and injury to other drivers. It includes all major coverage parts. Full Coverage includes Liability Coverage (Bodily Injury and Property Damage), Comprehensive and Collision.

In some states, Uninsured/Underinsured Motorist and Personal Injury Protection are included. Full coverage costs vary depending on the state you live in. From $1,148 per year in Vermont up to $3,865 per year in Florida.

Both insurances are designed to work together. Gap insurance is meant to pick up where Full Coverage leaves off. It bridges the gap between auto insurance policy coverage levels and the vehicle lease amount.

Do I Need Gap Insurance If I Have Full Coverage?

If you are leasing a vehicle, it would be wise to have added protection in the event of a total loss. According to Kelley Blue Book, within the first five years, a car can lose up to 60% of its value. Even full coverage will only protect the car’s Actual Cash Value, leaving you on the hook for the remaining balance.

When Do You Need Gap Insurance?

One may want to consider Gap insurance if:

• You made a small down payment –  vehicle depreciates the moment you leave the lot. If your down payment is smaller than the depreciation value, it will take longer to pay off your loan.
• You drive more than most – According to the Census Bureau, the average commute time in 2022 was 26.4 minutes. This is an increase from 2021. However, many travel further. A car depreciates faster the more it is on the road due to wear and tear on the vehicle.
• Purchased an extended-term loan – The lower your payments, the longer it will take to hit the break-even point on your loan.

If your down payment is larger than 20 percent of the sticker price, then you may be able to pass on purchasing Gap insurance when you sign up for Full Coverage. This is also true if you plan to pay off your car in less than five years.

How Much Does Gap Insurance Cost?

One can obtain Gap coverage in two places. And where you purchase it will determine your Gap insurance cost.

Dealership through the finance company – When you purchase your automobile, Gap insurance can be built into your car’s final price. There are pros and cons to this. For one, you will only have one payment to make. However, through the dealership, you will often have a higher price tag on your policy as you will have interest charges tagged onto your premium.

Through your auto insurance company – Through a normal car insurance company you can add Gap insurance to your policy. This is often a far less expensive route, and you can also cancel this portion when your policy is renewed.

According to MarketWatch, a Gap insurance policy will typically increase an auto insurance policy by $40 to $60 per year. When purchased through a dealership that cost can run into the hundreds of dollars per year.