Gap insurance, or Guaranteed Asset Protection insurance, is an optional form of insurance. It protects drivers with coverage who owe more on their auto loan or lease than the vehicle’s market value.

Knowing how much is gap insurance per month saves you grief and extra trouble. In most cases, auto insurance only pays the depreciated value and does not fully settle the remaining loan balance in the event of a totaled car or theft of the vehicle.

Gap insurance is meant to help with this shortfall and helps ensure that you do not have to pay for a car that you no longer possess.

But how much is gap insurance per month, and what determines its pricing? This article outlines gap insurance per month, gap insurance for auto car, where to buy gap insurance?

What is Gap Insurance and What is Its Significance?

As soon as you purchase or lease a vehicle, it’s worth begins rendering—so says the Insurance Information Institute.

With financed or leased vehicles, depreciation can create a “gap” between the amount sidelined of the loan and the actual cash value (ACV) of the collateral.

To illustrate, if you financed a vehicle at $30,000 and it gets totaled a year later with a market value of $22,000, but you owe $25,000, gap insurance takes care of the $3,000 difference (minus deductibles).

Gap insurance is primarily concerned with:

• Drivers who made a down payment of less than 20%.
• Long-term loans users (60+ month).
• Lessees, since many lease agreements call for gap insurance.
• Owners of vehicles that depreciate rapidly.
• Drivers who have negative equity from a previous loan and rolled it into a new vehicle.

Analyzing your monthly budget and financial needs will determine how much is gap insurance per month. However, estimating your budget with the coverage threshold can help frame the financial decision.

Cost of Gap Insurance Per Month

The gap insurance per month is determined by factors like the vehicle you own, your place of purchase, and many more. Let’s look at how rates are set from the most recent research available.

1. With Auto Insurers: Gap Insurance on an already purchased full-coverage auto policy (that includes comprehensive collision coverage and is paid monthly) is often cheaper compared to other methods of obtaining coverage. Estimated figures from Insurance Information Institute indicate that gap insurance policies issued by insurers come at a cost of about $20 annually or roughly $1.67 a month. Bit more recent research conducted by Insure.com shows that most insurers, such as Progressive, State Farm, or Allstate, pay an average of $90 a year or $7.50 a month. Some issuers like Nationwide or Travelers provide gap coverage even cheaper, as low as $4.17 a month or $50 annually.
2. From Dealerships or Lenders: Buying gap insurance for auto car dealership or a lender is much pricier. For example, dealerships tend to stick customers with a flat rate of $400 and $700. This amount is usually added to the loan, which means you will be paying interest, not just on the car, but on the insurance as well. This could add on approximately $60 per month over the life of the loan. Some companies offer these services at an extortionate markup. According to a report from the National Consumer Law Center published in 2019, “some dealerships markup gap insurance by as much as 300 percent.”
3. Regional Variations: Price may differ from state to state, and even city to city. The worst instance can be found in travelers gap insurance where they put the price at roughly $3700 in the state of Florida. Though this figure seems unusually high, the company might be bundling deals or have specific circumstances they count as loopholes. Unlike the previous example, in West Virginia, 40-year-old drivers might face as little as 2 dollars a month for gap insurance. Travelers isn’t the only insurance which gets bashed for outrageous pricing.

On average, gap insurance for auto car is approximately $2 to $20 a month, whereas dealerships charge an outrageous flat price for a product which when financed, cost more than insurance.

For the majority of drivers, including gap insurance per month with the current policy is the most optimal bang-for-your-buck decision.

Factors Affecting the Cost of Gap Insurance

The following factors influence the amount how much is gap insurance per month an individual will pay:

Vehicle Type and Depreciation Rate

Insurance policies that provide gap coverage on expensive vehicles is likely to cost higher, such as with a $100,000 Range Rover. The car would incur a cost of $150 per year or $12.50 on a monthly basis, owing to the rapid depreciation gap coverage vehicles experience.

On the other hand, slower depreciating vehicles, such as a $40,000 Toyota, would incur a cost of $50 per year or $4.17 per month.

Loan Amount & Terms

Gap insurance policies are likely to incur higher costs when the loan amount is larger, particularly above $40,000, or when the loan terms are longer, such as exceeding 60 months.

This increases the risk chance of being upside down (owing more than the car is worth).

Driver Profile

The average 40 years old driver would incur lower monthly payments, ranging from $3 to $12 while an 18 year old would incur higher gap insurance per month of around $24. Younger drivers tend to be riskier and require higher coverage.

Location

There gap insurance for auto car is cheaper in insurance-deficient US locations, such as Avon Park, Florida, at $230 a month. Suburbs with higher crime grades, Hialeah, also Floridian, have significantly higher rates, with gap insurance at $4,315 yearly or $360 monthly

Insurer Pricing

While some insurance providers appreciate the economic value for their clients, others charge exorbitantly. For instance, Auto owners offer gap insurance at a reasonable $5 per month. However, Farmers and Erie will charge as much as $ 144 annually ($12 per month).

Coverage Limits

Certain contractors such as Progressive impose gaps in coverage up to only 25% of the vehicle’s ACV which significantly lowers payout potential. Others, like Allstate, are incredibly lenient, allowing up to $50,000 worth of gap insurance for auto car which in turn raise the premium.

Is Gap Insurance Worth the Cost?

For many people, gap insurance can be a simple way to protect themselves from financial loss, but this does not make it a requisite safeguard. Think of securing gap insurance if: 

• The amount owed on your auto loan exceeds the current market value of the car.
• Down payments made towards the payout figure are less than average, or zero.
• Loan durations exceed 60 months.
• You lease a vehicle since it may be a prerequisite.
• The vehicle sustains rapid depreciation in value or has high mileage.

If you own your car outright or if the amount you owe is less than the car’s value, you don’t need gap insurance.

In addition, you can remove this coverage after your loan balance is lower than the car’s market value and may be eligible for a refund of unused premiums.

How to Reduce Your Expenditures on Gap Insurance

In order to reduce the cost of gap insurance on a monthly basis:

• Conduct an Informal Survey: Look into several insurers because there is significant difference between their rates (for example, $50 vs. $144 per year).
• Combine with Auto Insurance: It is more expensive to purchase gap coverage on its own than to add it onto an existing policy. Buying gap insurance through a dealership also tends to be more expensive.
• Cancel When No Longer Needed: Track the value of your car relative to how much you owe and remove gap insurance when you are no longer upside down to avoid paying excess costs.
• Avoid Expensive Add-Ons From Dealerships: Avoid purchasing gap insurance through the dealership as their prices are exorbitant and buy direct from an insurer to save hundreds of dollars.
• Maintain a Good Driving Record: Having a clean record can reduce the overall insurance premium for all coverages, including gap insurance.

Angle Office are one of the best insurers in Philadelphia area. If you are looking for best gap insurance per month, they are your best bet in the area.

Conclusion 

Gap insurance is a useful tool to avoid paying out of pocket when a car that is financed or leased is stolen or totaled. Buying it from an auto insurer saves you plenty bucks.

Gap insurance is ideal for borrowers who have small down payments on their loans or lease agreements as well as those with long term loans and vehicles that depreciate in value quickly.

Provided these conditions are met, gap insurance for auto car act as a source of peace of mind with little monthly expense. 

For further details on personalized quotes for gap insurance or to learn about the available options, contact your auto insurer or visit Angle Office for professional recommendations regarding auto insurance.