Is Gap Insurance A Scam? Closing In On The Gap Insurance Controversy

Is Gap Insurance A Scam?

If you’ve ever bought or leased a new car, you’ve probably heard of gap insurance.

Gap insurance is a type of car insurance that covers the difference between what your car is worth and what you owe on it if it’s totaled or stolen.

Sounds like a good deal, right? But is gap insurance a scam? Some people think so, and they have their reasons.

In this article, I’ll tell you everything you need to know about gap insurance, how it works, when you need it, and how to avoid some common scams.

Is Gap Insurance A Scam?Courtesy:Ramsey Solutions
Is Gap Insurance A Scam?
Courtesy:Ramsey Solutions

What Is Gap Insurance and How Does It Work?

Gap insurance, or guaranteed asset protection, is an optional coverage that you can buy from your car dealer, lender, or insurance company.

It’s usually offered when you buy or lease a new car, especially if you make a small down payment, have a long loan term, or have a high interest rate.

Gap insurance is meant to protect you from being upside down on your car loan, which means owing more than what your car is worth.

Here’s how gap insurance works: If your car is totaled or stolen, your collision or comprehensive insurance will pay you the actual cash value (ACV) of your car, which is the market value minus depreciation.

However, the ACV may be lower than what you owe on your loan or lease, especially if your car is new and loses value quickly.

This leaves you with a gap, or a difference, that you have to pay out of pocket. Gap insurance covers this gap, so you don’t have to worry about paying off your loan or lease.

For example, let’s say you buy a new car for $30,000 and finance it with a $25,000 loan.

After a year, your car is worth $20,000, but you still owe $23,000 on your loan.

If your car is totaled in an accident, your collision insurance will pay you $20,000, minus your deductible.

This leaves you with a $3,000 gap that you have to pay to your lender. If you have gap insurance, it will cover this gap for you.

Is Gap Insurance A Scam?

Gap insurance is a useful car insurance add-on that can save you from paying a lot of money if your car is totaled or stolen and you owe more on it than what it’s worth.

However, gap insurance is not for everyone, and you should weigh the pros and cons before buying it.

You should also be aware of some common gap insurance scams and how to avoid them.

Gap insurance is not a scam, but it’s not a magic bullet either.

It’s a tool that can help you protect your finances and peace of mind.

How to Avoid Gap Insurance Scams

Gap insurance is not a scam, but some dealers, lenders, and insurers may try to scam you with it.

Here are some common gap insurance scams and how to avoid them:

  • The dealer swallows the premium. Some dealers may charge you for gap insurance, but never activate the policy or pay the insurance company. This means you’re paying for nothing and won’t be covered if you need to make a claim. To avoid this scam, make sure you get a copy of your gap insurance contract and check that it’s valid and active. You can also buy gap insurance from your lender or insurer instead of the dealer.
  • The gap insurance has a cap. Some gap insurance policies may limit the amount they will pay in case of a claim. For example, they may say that they will only cover up to 10% of your car’s value, or up to a certain dollar amount. This means that you may still have to pay some of the gap yourself. To avoid this scam, read the fine print of your gap insurance contract and look for any exclusions or limitations. You can also shop around for different gap insurance policies and compare their coverage and cost.

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