Can You Buy Gap Insurance After You Purchase the Car?

When you lease a new car or buy with financing and a small down payment, the dealer's finance office may encourage you to buy gap insurance. If you pass on the dealer's offer and later decide that this type of insurance makes sense for you, buying a policy won't be a problem. Before shelling out hundreds of dollars for the coverage, check your options and avoid buying the insurance if you don't really need it.

TL;DR (Too Long; Didn't Read)

You can indeed buy gap insurance after you purchase your car. It pays to shop around since you might find a better deal than what the dealership offers you.

What Gap Insurance Fills

Gap insurance covers the difference between the loan or lease payoff amount and what your auto insurance will pay if you total your car in an accident. Car insurance will only pay the replacement value, which is what it would cost to buy your car on the used vehicle market.

Unfortunately, however, a new car will typically depreciate faster than you pay it off. If an accident totals the car, your insurance company will pay only the fair market value for the car, and this may not be enough money to cover your outstanding loan balance. This creates a funding gap. In the first few years of a lease or car loan, this gap can be thousands of dollars.

Check Your Lease Contract

If you're leasing your car, it's possible that gap coverage is part of the lease contract. Most leasing companies now include gap coverage in the lease terms. However, the specific words "gap insurance" may not appear in the contract, so read your lease agreement closely to determine what happens if you total your leased car in an accident.

Shop for the Lowest Price

When you purchase a car, the dealer's finance department can sell you a gap policy and roll the cost into your new loan, letting you pay for the insurance monthly. You can also buy your own gap coverage after you buy the car. Because gap coverage is pretty straightforward insurance, it's easy to collect several quotes and go with the one that provides the best value. Your current auto insurance carrier might be willing to add this coverage to your existing vehicle insurance policy.

Skipping the Gap Insurance

Gap insurance only works if you total the car and the insurance payment is less than the loan payoff amount. A larger down payment with a shorter-term car loan can reduce or eliminate the need for gap coverage. Saving more for a down payment or waiting longer to build equity in your current vehicle before you trade will give you a lower monthly car payment when you buy your next car and spare you the need for gap insurance. If you like to have a new car every few years, leasing with built-in gap insurance is a good alternative.

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