TL;DR: Yes – gap insurance (Guaranteed Asset Protection) is an optional coverage that pays the difference between your car’s actual cash value and the remaining loan or lease balance if the vehicle is totaled or stolen. In Illinois, gap insurance isn’t required by law, but many lenders and leasing companies mandate it for financed cars.
Without gap coverage, you could be stuck paying off thousands of dollars on an auto loan for a car you no longer have. For example, if you owe $25,000 on your car loan but your car’s value is only $20,000, gap insurance would cover the $5,000 “gap” after your standard policy pays the $20,000. New vehicles depreciate fast – often 20% or more in the first year – so many Illinois car buyers use gap insurance as a financial safety net.
(Need personalized advice? Call Insure on the Spot at 773-202-5060 to discuss adding gap coverage.)
What Is Gap Insurance and How Does It Work?
Gap insurance is an add-on coverage that bridges the financial gap between your vehicle’s value and what you owe on the loan or lease if it is totaled or stolen. Standard insurance (collision or comprehensive coverage) will pay out your car’s actual cash value (ACV) in the event of an accident or theft.
However, if the payout is less than the balance on your loan or lease, gap insurance covers the remaining amount.
For example, if your insurer values your totaled car at $8,000 but you owe $10,000 on your loan, gap insurance will pay the remaining $2,000. In Illinois, while gap insurance is not legally required, many lenders or leasing companies will require it to protect against the rapid depreciation of a new car.
What Does Gap Insurance Cover (and Not Cover)?
Covered:
- Total Loss Due to Accident: If your car is totaled in a crash, collision coverage will pay the car’s market value, and gap insurance will cover the remaining balance of your loan.
- Theft: If your car is stolen and not recovered, gap insurance will cover the difference between the insurance payout and the remaining loan balance.
Not Covered:
- Partial Damage or Repairs: Gap insurance does not cover repairs for minor damages. If your car is not a total loss, your regular coverage will pay for repairs.
- Deductibles and Extras: Gap insurance does not cover your insurance deductible, tickets, or any carry-over balances like extended warranties.
In short, gap insurance protects you when your car is declared a total loss or stolen, ensuring you are not financially responsible for a loan you can’t pay off due to depreciation.
Who Should Consider Getting Gap Insurance?
Gap insurance is especially beneficial for car buyers who are financing their vehicle with a low down payment or long loan term. It is also useful for those leasing a car, as many leasing companies in Illinois require gap insurance.
If you owe more on the car than it’s worth due to depreciation, gap insurance can save you from a significant financial burden.
Key Scenarios Where Gap Insurance Is Essential:
- Small Down Payment: If you put little money down, you might owe more than the car is worth early in the loan.
- Long-Term Loans: A loan that spans 60 months or more can leave you owing more than the car is worth for an extended period.
- Leasing: Leasing companies often mandate gap coverage.
- Rapid Depreciation: If you purchase a car that loses value quickly, such as a luxury vehicle, gap insurance can help protect you from being upside-down on the loan.
How to Buy Gap Insurance in Illinois
In Illinois, you can purchase gap insurance through your auto insurance company, the dealership, or your lender. Purchasing through your insurer is typically the most cost-effective option.
- Through Your Insurance Company: Most insurers offer gap insurance as an add-on to your full-coverage auto policy. The cost is generally affordable, typically between $40 to $60 per year.
- Through Dealerships or Lenders: Dealerships may offer gap insurance at the time of purchase, but it tends to be more expensive. Always compare prices and consider buying gap insurance from your insurer instead.
- Standalone Providers: You may also find standalone gap insurance policies from specialized providers, though these can be pricier.
Ensure you understand the terms and costs before committing to gap coverage. Many insurers will allow you to cancel gap coverage when it’s no longer necessary.
Is Gap Insurance Worth It?
For many Illinois car buyers, gap insurance provides peace of mind during the early years of an auto loan or lease. The relatively low cost of coverage can prevent you from paying off a loan for a vehicle that’s been totaled or stolen.
If your car is worth less than your loan balance due to depreciation, gap insurance can be a lifesaver.
However, once your loan balance becomes lower than the car’s value, gap coverage becomes unnecessary. For example, if you owe $5,000 on your car and it’s worth $7,000, gap insurance is no longer required because the standard insurance payout would cover the loan.
When You Don’t Need Gap Insurance:
- You’ve paid off most of your loan.
- You made a large down payment.
- Your car’s market value exceeds or is equal to your loan balance.
Frequently Asked Questions about Gap Insurance
Q: What is gap insurance?
A: Gap insurance (Guaranteed Asset Protection) covers the difference between your car’s actual cash value and the amount you owe on your auto loan or lease if the car is totaled or stolen.
Q: Why do car buyers need gap insurance?
A: Gap insurance is crucial for those who owe more on their car than it’s worth. It helps protect against financial loss if your car is totaled or stolen before you’ve paid off the loan.
Q: When is gap insurance beneficial?
A: Gap insurance is beneficial when you owe more on your car loan than the car’s market value, such as with small down payments or long-term loans.
Q: Is gap insurance required in Illinois?
A: No, Illinois law does not require gap insurance, but it may be required by your lender or leasing company.
Q: How much does gap insurance cost?
A: Gap insurance usually costs between $40 and $60 per year when added to your auto insurance policy. Dealer-provided gap insurance can be much more expensive.
Q: Where can I buy gap insurance?
A: You can buy gap insurance through your auto insurer, the dealership, or your lender. It’s typically most affordable through your insurance company.
Q: How do I know when to cancel gap insurance?
A: Once your car’s value exceeds or matches the amount you owe on the loan, gap insurance is no longer necessary. You can cancel it at any time.
Q: Does gap insurance cover theft and other losses?
A: Yes, gap insurance covers theft and total losses. It does not cover repairs or your insurance deductible.
Q: Do I need gap insurance if I have full coverage auto insurance?
A: Full coverage will pay for your car’s value, but it won’t cover the difference if you owe more than the car is worth. If you’re “upside-down” on your loan, gap insurance is still needed.
Q: Can I get gap insurance after I’ve bought the car?
A: Yes, you can typically add gap insurance later through your auto insurer, provided the vehicle and loan meet eligibility criteria.
Get a Quote Today!
Gap insurance offers valuable protection for car buyers who are at risk of owing more than their car is worth. If you’re unsure whether gap insurance is right for you, Insure on the Spot can help. Contact us today at 773-202-5060 to discuss your coverage options and get a free quote. Let us help you stay financially protected in the event of a total loss or theft.