Is your car under water? No, we’re not talking about a flood; this is about being “upside down” financially. Gap insurance in Connecticut is an optional add-on coverage to your auto policy that covers the gap between what you owe on a loan and what your car is worth in the event your vehicle is totaled in a covered loss.
While you may initially balk at the words “add-on coverage,” it’s important to understand the risk you take by not carrying this insurance on your auto policy when you have an outstanding auto loan. While the term “gap” insurance is fitting for covering the difference between what your car is worth and what you may still owe on it, “gap” is also an acronym for “Guaranteed Asset Protection.” Let’s look at what gap insurance covers and the typical cost to carry it on your auto policy to help you determine if it’s right for you as a motorist in CT.
What Does Gap Insurance Cover?
Gap Insurance pays the difference between what you still owe on your auto loan and the actual cash value (ACV) of your ride. If your car is deemed a total loss as a result of a covered loss, a standard auto policy will provide you with a settlement based on the actual cash value (ACV) of your car, meaning that you’ll be reimbursed for what the car is actually worth at that particular time less any deductible you have selected on your policy. For example, if you owe $17,000 on your auto loan, but your vehicle has depreciated in value to $14,000, your settlement check from your insurance company may only be $13,500 after your $500 deducible is paid. (Keep in mind that gap coverage and your deductible are separate costs).
This example shows a gap of $3,000 after the deductible is met. According to CCC Information Services, a data aggregation company that tracks insurance claims, 15-18% of cars involved in a collision will result in that car being deemed a total loss by the insurance carrier. This is also true for a total loss resulting from a auto car that is not recovered. Studies conducted by the National Highway Traffic Safety Administration (NHTSA) reveal that a car is stolen about every 41 seconds in the United States, and 42% of these vehicles are never recovered.
What Does Gap Insurance Cost?
You may be surprised to find that it is very affordable. Generally, most auto insurance carriers will charge somewhere in the range of about $20-$30 per year for you to carry gap insurance on your auto policy, which is a small percentage of what you may typically pay per month for auto insurance coverage.
This is a no-brainer when you consider potentially risking thousands of dollars with a vehicle that depreciates more quickly than you can pay off your auto loan. While you may not want to pay more money for car insurance, think of how you would feel if you still owed a few thousand dollars on a car that was sitting in a salvage yard.
When Should You Carry Gap Insurance?
Most auto dealerships that lease vehicles in CT will mandate that you carry it in order to protect their interests in the asset they are permitting you to drive. If you drive a late model car (especially expensive vehicles) for which you have a loan, you should also consider carrying it.
According to Automotive News, the average car can lose up to 17.8% of its value in every year. Other reasons to consider carrying gap coverage include the following:
- High Mileage Driving – Mileage will speed up depreciation of value.
- No Down Payment – If you made a very small down payment, or no down payment, this makes your auto loan balance to value ratio higher right from the beginning which increases your risk.
- Auto Loan Duration – If your loan duration is four years or longer, you’re at higher risk, with depreciation potentially outpacing your loan payoff schedule.
Final Thoughts on Gap Insurance
Generally speaking, there are three ways you can purchase gap insurance to protect yourself financially. Some auto dealerships and lenders have a program that offers a one-time fee that can be included in your loan payments. You may also purchase the coverage through a company that specializes in selling only gap insurance. The third option is to purchase the coverage from your car insurance carrier.
To help you in your research about auto insurance, you can read more about full coverage, comprehensive coverage and discounts available. As a driver in Connecticut, the best way to purchase this coverage is directly through your insurance carrier. If you think this coverage is right for you, get in touch with Plymouth Rock Assurance. Plymouth Rock has provided motorists with auto insurance protection and advice for decades. If you have questions about gap insurance in CT, contact Plymouth Rock today, and a friendly, knowledgeable representative will be happy help.