Gap Insurance: What Is It and Who Needs It?

When you buy a new car, you may be asked if you want gap insurance. Find out all the benefits of gap insurance—and understand how insurance options help protect you—so you can decide what’s right for you.

 

 

What Is Gap Insurance?

 

Gap insurance literally covers the gap between what you owe on a car and what it's worth if your car is totaled in a covered loss, such as an accident or theft. The types of losses covered and the extent of coverage vary depending on the company providing the gap insurance, so make sure you clarify what's covered before you make your decision.

 

Who Needs Gap Insurance?

 

If you purchased or leased a new vehicle and weren't able to afford a large down payment, you may need gap insurance. Vehicles notoriously depreciate in value — and quickly — and depreciation starts the moment you leave the dealership. If you're not able to pay the difference between what you owe and what your vehicle is worth out of pocket, gap insurance may be worth your while.

One thing to remember if you're leasing a vehicle: Often, leasing companies include gap insurance or loan/lease payoff coverage in their contracts, so make sure you review your contract before you purchase it from your auto insurance company.

 

When Do You Need Gap Insurance?

 

Here's an example of when you'd use gap insurance: You swerve to avoid a deer and end up driving into a ditch, where your brand new vehicle rolls over. Though no one's hurt, your car sustains heavy damage — so much so that the cost to repair your vehicle is higher than its actual cash value (ACV). Your insurance company decides to total your car, and after running an N.A.D.A. valuation, they determine the ACV is $25,000.

You purchased your car a few weeks earlier for $28,000, and you haven't even made the first payment yet, so you still owe $28,000 to your lender. If your insurance company pays $24,500 to settle your claim — remember: you still have to pay your $500 collision deductible, so you must subtract that amount from the ACV amount — you're still responsible for paying the remaining $3,500 to your lender.

In this case, if you have gap insurance, that $3,500 is covered by your insurance company, and they'll pay your lender the difference between what you owe and what your vehicle is worth. You won't be responsible for paying the difference because you chose gap insurance when you got the vehicle.

Keep in mind that if you purchase gap insurance from your insurance company, often you can only use this coverage if your claim is covered under your comprehensive or collision coverage. Not every insurance company offers the same types of coverage, so refer to your policy for more details.

When Should You Drop Collision Coverage?

 Many people with newer cars keep collision coverage on their policies, but they also may not know when or if they should drop this coverage. While there's no set rule for determining whether collision coverage becomes unnecessary for your particular situation, there are some simple considerations to make if you're debating whether or not you should keep it on your policy. We've outlined them here.

 

 

What's your vehicle's actual cash value?

 

This is one of the easier things to determine because you can find several sources that will provide actual cash value (ACV) estimates online or through publications. Common sources for ACV estimates are N.A.D.A. Guides, Kelley Blue Book and Black Book. These will give you a good idea of what your vehicle is worth.

 

If you're not sure which source to use, you can contact your insurance company to see how its claims department determines ACV in your area. Often, one of these guides is used by claims representatives to establish a vehicle's ACV.

 

Remember to be realistic about the condition of your vehicle to get a realistic ACV estimate. If your vehicle has dents, sun damage, torn upholstery, etc., these may lower your vehicle's ACV.

 

How much do you pay for collision coverage?

 

Factor in the price you pay for collision coverage. If your collision premium is $250 for a six-month policy term, you're paying $500 per year to insure your vehicle against damage that may never happen. For your situation, is the cost worth the potential risk?

 

If your vehicle is worth $2,500 and your collision premium is $500 per year, you're paying 20 percent of your vehicle's value for one insurance coverage.

 

On top of that, the most you'd receive in a total loss settlement would be $2,000, and that doesn't factor in the amount you're paying for collision coverage. Should you keep collision at this point? Well, it depends on your personal situation — more on that later.

 

Keep in mind that collision premiums generally decrease as your vehicle ages, so the cost for collision coverage may be less next year than it is this year.

 

What's your collision deductible?

 

What deductible did you choose when you added collision coverage to your policy? Did you select a $500 deductible? $250? $1,000? It is important to consider the amount of your deductible because, if you ever have to use collision coverage, you'll be responsible for paying that amount out of pocket.

 

If you selected a $500 collision deductible and you pay $250 every six months for your collision premium, you could be paying $750 out of pocket to have and use collision coverage for each policy term, so consider what you're able to handle financially. Would the amount paid by your insurance company help you after you've paid your deductible?

 

What can you afford out of pocket?

 

Sit down and think about what's best for you, right now. If you're living paycheck to paycheck, a $500 settlement from your insurance company may be exactly what you need to replace a totaled car. However, if you've amassed a pretty comfortable financial nest, you may be able to afford $5,000 or more out of pocket.

 

Before you decide, also consider more than just money factors. If you drop collision coverage and have to replace your vehicle unexpectedly, are you able to spare the time it takes to shop for a new car? If you're without a car for a few days, will you be able to get to work or other scheduled engagements without your vehicle? Is a rental car feasible until you find a new vehicle?

 

What services or options would you forfeit if you drop collision coverage?

 

Finally, consider what else you're bypassing by dropping collision coverage. If you don't have Collision coverage, will forfeiting options for other coverages affect you negatively? For instance, with some companies, if you drop Collision coverage, you won't be able to purchase Rental Reimbursement coverage.

 

Should you keep collision coverage or drop it?

 

Your personal situation purely drives this decision. If you have a $1,000 collision deductible on a vehicle that's worth $1,000, you're basically paying for insurance that's not going to pay you when you need it. Some people choose higher deductibles because the premium is lower, which means up-front costs are lower. Think about this before making your decision. Focus on what you can handle, including time and money considerations, before you decide. You may be surprised at what you discover.

ObamaCare makes it more difficult to buy insurance year-round

Here's more fallout from the health care law: Until now, customers could walk into an insurance office or go online to buy standard health care coverage any time of year. Not anymore.

 

 

Many people who didn't sign up during the government's open enrollment period that ended Monday will soon find it difficult or impossible to get insured this year, even if they go directly to a private company and money is no object. For some it's already too late.

With limited exceptions, insurers are refusing to sell to individuals after the enrollment period for HealthCare.gov and the state marketplaces. They will lock out the young and healthy as well as the sick or injured. Those who want to switch plans also are affected. The next wide-open chance to enroll comes in November for coverage in 2015.

 

It's a little-noted consequence of President Obama's health care overhaul, which requires nearly all Americans to be insured or pay a fine and requires insurers to accept people with health problems.

 

"I have people that can buy insurance, but the companies shut them down. They won't take the applications," insurance broker Steve Bobiak of Frackville, Pa., said. "We're a free country. You should be able to buy anything anytime you want."

 

Those who act now may still be able to get in, depending on where they live. Following the lead of the government marketplaces, some companies are extending off-marketplace sales for a week or a month to help people who hit snags trying to enroll by this week's deadline. Rules vary from state to state.

 

After those extensions, eligibility for coverage during 2014 is guaranteed only for people who experience certain qualifying life events, such as losing a job that provided insurance, moving to a new state, getting married, having a baby or losing coverage under a parent's health plan.

 

The federal law doesn't prevent companies from selling policies to everyone all year. But insurers consider it too risky now that the law prohibits them from rejecting people in poor health.

 

"If you didn't have an open enrollment period, you would have people who would potentially enroll when they get sick and dis-enroll when they get better," said Chris Stenrud, spokesman for insurer Kaiser Permanente. "The only insured people would be sick people, which would make insurance unaffordable for everyone."

 

Bobiak, whose NICA Benefits company helps people buy insurance in New Jersey, Ohio and Pennsylvania, said he learned only a couple of weeks ago that insurers were cutting off new policies.

"It's lousy communication out there," he said. "If we don't know, my God, how do they expect other people to know? It's terrible."

 

A survey by the Kaiser Family Foundation in mid-March found that 6 out of 10 people without insurance weren't aware of the marketplace deadline on March 31. The Obama administration, insurance companies and nonprofit groups scrambled to spread the word, often with messages that focused on the cost savings available to many people through the government marketplaces.

 

There wasn't much public discussion about people who prefer to buy policies outside the marketplaces, sometimes finding better deals or options more to their liking.

 

Health and Human Services spokesman Aaron Albright pointed to a cryptic note on the HealthCare.gov website: It says "in some limited cases some insurance companies may sell private health plans outside the marketplace and outside open enrollment" that satisfy the law's coverage mandate. It doesn't say how to find any companies doing that. Albright had no further comment.

 

Gary Claxton, a health law expert at the Kaiser Family Foundation, said it's "highly unlikely" that companies will offer such coverage after the deadline window fully closes. Some do still offer temporary plans, lasting from a month to a year. But those plans don't cover pre-existing conditions and don't get buyers off the hook for the law's tax penalty.

 

Nate Purpura, spokesman for eHealthInsurance.com, which sells policies from 200 companies across the nation, said at this point he knows of none planning to offer major medical insurance after this month, except to people with qualifying life events.

 

For people trying to get an off-marketplace plan through an open enrollment extension, some insurers are selling them through April 15, and others through the end of the month. Purpura said eHealth will offer such plans in at least some areas of these states: Arizona, California, Georgia, Hawaii, Louisiana, Maryland, Michigan, Nevada, New Mexico, Ohio, Oregon, Utah, Virginia and Washington state.

 

Kaiser Permanente will offer extensions that mirror the state or federal marketplace in the area where a plan is sold, Stenrud said. The federal marketplace extension for online enrollment is April 15. But Oregon, for example, is giving marketplace buyers until April 30.

 

After that, Stenrud said, without a qualifying life event, the door closes until Nov. 15.

Nationwide Insurance is Proud to Sponsor “Maria’s Message” to Help End Distracted Driving

 

If you live in Central Ohio, you probably know the name Dom Tiberi.

 

As weekday sports anchor of WBNS-10TV News and co-host of the weekend Wall-to-Wall Sports, Dom delivers the news on the OSU Buckeyes, Columbus Blue Jackets and local high school sports.

 

Central Ohioans have a deep and personal connection to Dom. So, in September 2013, when his daughter, Maria, was killed in a distracted driving-related car accident, the community felt his pain and loss.

 

Now, Dom has turned tragedy into opportunity.

 

In February, the Tiberi family and WBNS launched “Maria’s Message,” a public service campaign to help stop distracted driving and prevent other families from suffering the heartbreak the Tiberis endured.

 

Nationwide Insurance is a proud sponsor of “Maria’s Message” and shares Dom’s efforts to end all types of distracted driving.

 

Together, we can honor Maria’s spirit by doing everything we can to make our roads safer and prevent distracted-driving accidents.