Gap insurance is usually suggested for new cars as they face the highest depreciation rate. However, you can purchase gap coverage for used vehicles as well. It’s important to note that some insurance companies may only offer gap insurance for used cars that are less than three years old.
Is gap insurance worth it on a used car?
While gap insurance for a used car is not mandatory, but it can be beneficial depending on your situation. The key factor to consider is the difference between the amount you owe on the car loan and the vehicle’s actual cash value (ACV) after depreciation.
Let’s say you have a car loan of $13,000, but due to depreciation, the value of your car has dropped to $11,000. In the unfortunate event of your vehicle being stolen or totaled, your comprehensive or collision coverage will typically only pay out the ACV, which would be $11,000, minus your deductible. If your deductible is, for example, $500, you would still be responsible for covering the remaining $1,500 on your loan.
With gap coverage, you would only be required to pay your deductible, and the insurance company would pay the remaining amount due.
Gap insurance is optional, and its necessity may vary depending on individual circumstances. Consider your loan amount, your car’s value and your financial situation to determine if gap insurance is a wise choice for your used car.