Gap insurance, a good idea?

Gap insurance is typically a bad bet against yourself. You win the bet if you total the car. The odds are very high against this, and the insurance company makes money on the bet. Getting a replacement policy is normally a better choice.

If you can't afford the difference between the loan and value of the car, you likely can not afford the car. Lottery tickets are likely a better "investment".

 

It's not necessarily a bet against yourself. Other drivers make mistakes, too.

 

You are betting something very bad happens to you, whether you caused it or not. Often when a new car is totaled there are injuries also. The insurance company makes the bet because the odds are very much in its favor. If the insurance company wasn't taking most of the premium as a profit, perhaps it would be sound insurance.

 

Ah, I understand now. You're saying the car is still totalled regardless of who is at fault. Yes, injuries are often a bigger factor in major wrecks. Also, I suppose few cars are wrecked badly enough to be totalled-- most can be repaired.

 

If you buy it from a dealer for several hundred $ it's a bad investment. Most auto insurance policies offer it for a VERY reasonable cost, in some cases less than $20/year, it's a very good investment, and a very small incremental rider in comparison to what most pay for insurance. Let's put it this way, if you buy a new vehicle your trade equity or down-payment on the vehicle is generally at risk should your car be totaled after driving it off the lot.

 

I turned down every scheme the stealership offered.

 

The underlying principle is that the payments to you are restitution so you cannot be worse off after the accident. It doesn't matter whether you're $5k under water on the car. The gap insurance just means that a company will pay you the negative equity and then do the legal legwork to get the money back.

 

It is similar to life insurance...if you drop dead you win!

 

To be honest, Austin... Given the number of people I have given the one finger salute... I rather take the bet because there are just THAT many morons driving out there, or doing things stupidly... There is always a chance I would be a part of someone else's accident, regardless of me trying hard to avoid it.

 

Slightly different situation for me--lease, not financed purchase. I leased my Prius--first time I've leased a car (with auto tech changing so rapidly--hybrid, electric, etc.--I decided to let somebody else assume the residual risk). The dealer offered GAP coverage for something like $600 (from memory), but I got it from my insurance company for under $25 every 6 months, so under $150 for 3 year lease term.

I'm a big believer in self-insuring (high deductibles, never buy extended warranties, etc.), but felt that it was worth $150 not to have to worry about this for 3 years.

 

If you don't have much money and you financed the car for 5 or 6 years, it's not a bad idea, depends on how much you paid for the gap. If you got it thru the dealership you probably paid too much. It might not be too late, you should shop for gap insurance thru your insurance company and compare rates.

 

Insurance is very complex subject. You never want to be under or over insured. I would start with your stomach for risk. What would happen if you had to junk your car? Will few thousand dollars change your life. If you will have to make a dramatic change to your life then maybe the insurance is worth it. However, if it will cause you a headache for few months i would highly suggest to skip it. Odds are always in favor of the house. Insurance companies are selling these add ons to increase their profit. Think of them as extended warranty.

 

Never, ever, ever under any circumstance by GAP insurance for any reason! I'ts only there to protect the stealership.

GAP = Gullible Acquired Policy

 

all,

I'm no insurance expert, but I've had it explained to me that new cars depreciate faster than the loan gets paid down (especially on today's 5, 6, or 7 year loans), so early on you can be upside down on your loan (you owe more than the car is worth at the time of an accident). So this gap insurance makes up for that "gap" in value (except of course for the deductible you carry). At least this is how I understand it.

Ken (in Bolton,Ct)