Automobile accidents are an unfortunate fact of life. No one wants to be in an accident, but you’ll be glad you have good insurance coverage if you are. Car insurance provides peace of mind and ensures that you comply with the law.
If you have a car that you’re financing, most banks or auto loan providers will also require you to carry comprehensive and collision coverage, which pay for any damage that occurs in a car accident (or other damage not related to a collision).
While having liability, comprehensive, and collision coverage is enough to protect you from most issues that you might encounter, there is another form of coverage that you should look into. It’s called gap insurance, and it helps protect you from owing more on your car loan than your vehicle is worth. In this article, we’ll review what gap insurance is, why rideshare drivers should consider it, and look at four car insurance companies that currently offer gap insurance coverage.
- What Is Gap Insurance?
- Why Should Rideshare Drivers Get Gap Insurance Coverage?
- 4 Car Insurance Companies That Offer Gap Insurance
Gap insurance is a form of optional coverage available as an add-on to most car insurance policies. Gap coverage protects you from the “gap” that can result when your vehicle gets totaled and you owe more on it to your creditors than its currently worth.
How does a situation like this happen? Depreciation is the reason. When you buy a new car, it immediately depreciates in value the moment you drive it off the car lot. From there, depreciation continues over the time that you own the vehicle. However, if you finance the vehicle, you’ll owe your auto lender the full purchase price.
If your car gets totaled, then your lender can demand immediate repayment of the full balance due on the loan, regardless of how much your car was worth when it was totaled. Since most insurance policies only cover the actual cash value of the vehicle (the depreciated amount it was worth at the time of the accident), you could end up owing thousands of dollars to your lender.
To protect yourself from this situation, you can purchase gap insurance coverage. This coverage will help you repay the amount that your regular car insurance won’t pay.
If you drive for a rideshare company like Uber or Lyft, then having a working vehicle is essential. Whether you use rideshare driving as a form of side income or as your full-time gig, losing the tool you use to make your money (and get around) is a serious loss.
You don’t want to have to deal with high out-of-pocket costs to pay your loan balance on top of the stress of finding a new car you can use. When you buy gap insurance, you protect yourself against this emotional and financial stress. You can use the savings you have to help buy a new car, not to pay off a loan on a vehicle that’s now a mangled piece of junk.
Now that you know what gap insurance is, let’s take a look at several car insurance companies that offer it. Before we do that, however, you need to understand that it’s generally cheaper to buy gap insurance through an insurance company.
Many car dealerships will attempt to sell it to you when you’re buying a new car, but the prices they charge are usually outrageous compared to what an insurance company charges. This is especially true if you work with your current insurance company to add gap insurance to an existing auto insurance policy.
While the recommendations below are a good representation of the current gap insurance marketplace, you should always check with your current car insurer to see if they offer gap insurance coverage. With that said, here are the top four car insurance companies that currently offer gap insurance.
Let’s start with Allstate. The company offers a straightforward form of gap insurance coverage as an add-on to collision and comprehensive coverage. They also make a point of noting (in their page explaining gap insurance) that gap insurance only serves to pay off any balance remaining on your loan that the rest of your car insurance doesn’t cover.
Gap insurance does not pay for the cost of a new car to replace the one that was totaled. For this, you’ll need new car replacement coverage. However, the company can often sell you both types of coverage as a bundle.
Esurance offers a policy called loan/lease coverage (or loan/lease gap coverage in some states) that will pay up to 25 percent of your car’s actual cash value in the event of a total loss (i.e. your car is damaged to the point that it’s no longer driveable).
You’ll have to do the math to decide if this is a good deal or not. In most cases, the additional amount will be more than enough to cover the gap that could result between your loan balance and your car’s actual cash value.
For instance, let’s say you purchase a car for $30,000. It then depreciates by $5,000 after you drive it off the car lot, meaning its actual cash value is now $25,000. You then get into an accident that totals the car. You now owe $30,000 on a car that’s only worth $25,000.
Since you have gap insurance, however, Esurance will pay up to $7,500 to cover the gap between your car’s actual cash value and your loan balance. That’s great news for you, as the gap in this example is only $5,000.
The above is an extreme example (it assumes you put 0 percent down on the vehicle and that it was totaled before you’d even had a chance to make your first car payment). However, it underscores the importance of gap insurance when financing a new car in which you have little to no equity.
Nationwide’s website is vague about the specifics of their gap insurance coverage, only noting that they do offer gap insurance and that “If your car is a total loss after an accident, this coverage may pay the difference between the actual cash value and what you owe on the lease or loan.”
The reason that they’re so vague is that the specifics of gap coverage vary greatly from state to state and from person to person. This is true with all insurance products, so the best way to find out more is to get a quote from the company.
USAA does not offer gap insurance per se, but they do offer a similar form of coverage that’s worth mentioning. It’s called USAA Total Loss Protection, and it covers the difference between what you owe on your vehicle and what your insurance company says it’s worth. The reason that it’s different from regular gap insurance is that it also covers up to $1,000 of your insurance deductible in the event of a total loss.
In order to qualify for this coverage, your auto loan must meet the following criteria:
- Vehicle must be seven years old or newer
- Vehicle cannot be salvaged or reconditioned
- Loan amount must be $5,000 or greater
- Loan to value ratio amount must be 65 percent or greater
In addition, you can only apply for this coverage at the time of origination for your auto loan. This means that you can’t apply for it after you’ve already received the loan and have started paying it off. Therefore, USAA Total Loss Protection is only something you should consider if you’re planning to buy a new car but haven’t yet done so.
Cover the Gap for Peace of Mind
After reading this article, you should better understand the importance of gap insurance (and where you can buy it).
Please note that this article is for informational purpose only and does not imply an endorsement of or sponsorship from any of the companies mentioned. You should always get a car insurance quote to get accurate information about the coverage available to you (and what that coverage will cost).
For more information on rideshare insurance, consult our complete rideshare insurance guide.
Brett Helling is the owner of Ridester.com. He has been a rideshare driver since early 2012, having completed hundreds of trips for companies including Uber, Lyft, and Postmates. In 2014 he acquired Ridester.com to share his experiences with other drivers. His insights are regularly quoted by publications such as Forbes, Vice, CNBC, and more. He is currently working on a book about working in the Gig Economy, expanding his skill set beyond the rideshare niche. Read more about Brett here.