The team at Morse Insurance answers commonly asked questions about this essential auto loan/lease coverage
Nothing beats the carefree – and relieved – feeling you get when you finally drive away from the dealership in your brand-new vehicle.
However, we think we can all agree that the road you need to take to get to this blissful state of new car ownership can often be stressful, especially when you begin to worry about the cost associated with repairing or replacing your new car in the event of a total loss, such as collision or theft, and how you’d pay for it. If you’re currently in the market to buy a new car, the team at Morse has no doubt that you’ve done your homework. Throughout your time researching online, you may have even stumbled across loan/lease gap coverage, an auto insurance endorsement that may be able to provide you with the extra layer of protection you need.
But before you march into the car dealership, there’s just one more step that we recommend you take and that’s to call your trusted Morse agent.
Why contact us now? Not only can our team provide you with a personalized auto insurance quote for the exact car you are considering, we can also begin the auto insurance application process ahead of time, creating a smoother car buying experience.
Plus, making a quick phone call to the Morse team before you step foot in the dealership will give us time to review your coverage options with you, identify available discounts, and discuss your newly researched endorsement, Loan/Lease Gap Coverage, as well as others including Accident Forgiveness and Disappearing Deductible Rewards.
What is loan/lease gap coverage, and how does it work?
If you were in a car accident, one that was severe enough to total your car, depending on your specific auto policy, your carrier typically will only reimburse you the actual cash value (ACV) of your vehicle at the time of the accident. At first pass you may not see any issues with this – after all, you’ll have a check in hand to go buy yourself a new vehicle, right? But, this payout could leave you a little (or a lot) short if you owe more money on your car than it’s worth at the time of the incident.
And that’s because unlike other major purchases, such as buying a home, a new car is going to decline in value. While home prices go up and down, vehicles lose a significant amount of value the moment you drive them off of the dealer’s lot.
As we outlined earlier, most insurance carriers settle claims based on the actual cash value of a vehicle, so if you have a hefty loan or lease associated with your car, or purchased a vehicle that deprecates faster than most, gap insurance is a smart and worthwhile purchase for you to consider. For example, if you were involved in an accident, and after assessing the damages your insurance carrier considered the car totaled, without gap insurance, you may find yourself financially responsible for quite a bit. And that’s because after your insurance provider sends you a check for the ACV of your car, you may still have a remaining balance due on your loan or lease, and it would be your responsibility to pay for that out of pocket. Ouch! The good news is that a gap insurance endorsement may provide the financial safety net you need to absorb some of those potential costs.
One thing gap insurance will not cover, however, is your auto policy deductible, so you will still be on the hook for that in the event of an accident that totals your car or if your car is stolen. This option also does not come into play if your car is unrepairable due to damages caused by mechanical issues, such as engine failure.
Should you consider adding gap coverage to your auto insurance policy?
Determining whether or not gap insurance is right for you depends primarily on how you purchased your vehicle. If you purchased a vehicle under any of the following circumstances, then the team at Morse would encourage you to add gap insurance to your auto insurance policy:
- Put less than 20 percent down on a new car. Your savings account was unscathed after making a lower down payment at the time of purchase, however, in the event of a total loss you may be left financially responsible for a large sum of money. It goes without saying, but this will likely result in a hit to your monthly cash flow and your hard-earned nest egg.
- Agreed to an extended loan or lease term. While extending the term of your loan or lease agreement to 48 or even 60 months means your monthly payment is manageable, you are also now driving a car around with a substantial amount of debt. We now know that cars depreciate in value very quickly, we’re talking the minute you drive it off the lot, so not only are you paying more for your car in the long run, you are also exposing yourself to a higher risk of paying out of pocket to cover the gap between how much you owe and how much your car is worth in the event of a total loss.
- Your vehicle depreciates faster than other makes and models. Some cars and trucks depreciate faster than others, and if yours is one of them then you are increasing your odds of potentially owing more than your car is worth in the event of a claim. Of course, you can investigate this before buying a new vehicle on Kelley Blue Book or a similar site.
Gap insurance is not necessary for everyone or every circumstance. In fact, Morse typically only recommends gap insurance to car owners who find themselves in one of the situations listed above, and that’s because the endorsement really only benefits car owners who financed the purchase of their new vehicle, and then, only for the time in which the car is worth less than what they owe on their loan or lease.
Is gap insurance mandatory for all loan or lease holders?
Gap insurance is not a mandatory insurance requirement for anyone regardless of their situation. But, while there are no current state or insurance laws requiring you to purchase this coverage, at Morse we encourage you to have a conversation with us about this valuable insurance endorsement before you go new car shopping so we can better determine if it is a good fit – and possible financial safety net – for you. In addition, a quick phone call with one of our agents will also reveal the many benefits of purchasing this coverage through a local and independent agency, such as saving you money and providing you with more flexibility to cancel whenever you want.
Could gap insurance already be included in my auto insurance policy?
Some insurance carriers do include gap insurance or a similar type of auto loan/lease coverage in their auto insurance policies. However, there is no hard and fast rule as this is done on a case-by-case basis. If you are unsure if your auto insurance policy currently includes this coverage, it is best to give an experienced Morse insurance professional a call. We are more than happy to review and discuss the details of your specific auto insurance policy with you. Our team will also take this opportunity to identify any and all available discounts that you may not be currently taking advantage of, including bundling your auto and home insurance with the same carrier and disappearing deductible.
We know this is a lot to consider, and Morse, of course, is here to answer all your questions about gap insurance. Whether you’re in the process of purchasing a new car or you’ve recently purchased one, the sooner you can find the time to talk with us, the better it will be for your new car, your wallet and more importantly, your peace of mind.
To learn more about gap insurance or to schedule a complimentary policy review with a friendly and knowledgeable member of the Morse team, call us today at 508-238-0056 or stop into any one of our four convenient Massachusetts locations.