The moment you drive that shiny new car off the lot into the Florida sunset, it starts to lose value. According to the Insurance Information Institute (Triple-I), most vehicles depreciate 20% in the first year. If you total your vehicle, your auto insurer will pay the depreciated market value of your vehicle determined at the time of loss. If you still owe a large amount on your auto loan, you’ll be financially responsible for the difference. That’s why buying gap insurance is generally recommended for new vehicle owners. Some of the best car insurance companies offer gap coverage as an add-on to your policy. With this coverage in place, you won’t be stuck with a large vehicle loan if your new car is totaled.
What is gap insurance?
Guaranteed Asset Protection, also known as gap insurance, is an optional coverage you can add to your auto insurance policy that pays the difference if your car is totaled or stolen and you owe more than the claim payout amount on your auto loan.
For example, let’s say you still owe $30,000 on your auto loan for your vehicle, but it has depreciated since you purchased it last year. If your vehicle is totaled and the current market value for your vehicle is $26,000, this is the amount you’ll receive from your insurance company (minus your deductible). That leaves you on the hook for $4,000 to your lender at a time when you’ll also need to replace your vehicle. In this example, gap insurance would pay off that additional $4,000 owed on your loan.
How does gap insurance work in Florida?
In Florida, gap insurance is not required by law, but some auto lenders may require it, and it’s included in many lease contracts. It’s also wise to purchase if you are financing a new vehicle, especially if you put down less than 20% and you have a loan that is 60 months or longer.
Gap insurance is less common with used vehicles. Depending on your auto insurer, you may only be able to purchase gap insurance for a vehicle that is less than two or three years old. Some insurance companies may also require you to be the original owner. And your gap insurance may expire once your car reaches a certain age.
Keep in mind that gap insurance is different from new car replacement coverage. With gap insurance, when you file a claim with your auto insurer, and your car is declared a total loss, your provider will pay your lender. New car replacement coverage, on the other hand, helps you purchase a brand new vehicle of the same make and model, or may even pay more than the value of the original vehicle if a newer model is available. Some insurers will offer both coverages as a package, while others will only allow you to purchase one or the other.
When do you use gap insurance?
Gap insurance is only used if your car is declared a total loss before your gap coverage expires. Purchasing gap insurance will not help cover your vehicle’s regular repairs after an accident or engine failure.
For example, let’s say you drive your new car off the lot, and into a telephone pole and your car is damaged beyond repair. You only made a 5% downpayment on your auto loan, but your car would likely depreciate to about 91% of its value immediately, according to Edmunds. That means you would only receive 91% of your vehicle’s value from your auto insurer, but you would owe 95% of its value to your lender. Gap coverage would help you pay off the difference.
Gap insurance vs. other coverages
Unlike other types of car insurance, gap insurance is optional. It only covers you in certain situations, and it typically expires as your car ages. Comprehensive and collision insurance are also optional, but these coverages are more widely available and are usually necessary to help cover repair costs of your vehicle from an incident. Here’s how these insurance types compare:
|What it covers||The remainder of the balance owed to the lender when a vehicle is stolen or totaled||Covers vehicle damage and loss from theft, hail, hitting an animal, and other non-collision events||Covers damage to your vehicle from a collision with another vehicle or property|
|Who offers it||Your dealership, lender or an auto insurance provider||Most insurance providers||Most insurance providers|
All three coverages are important for new vehicles, and insurers will require that you have comprehensive and collision coverage on your vehicle in order to add gap coverage.
Where to buy gap insurance in Florida
Gap insurance is available through many major insurance providers in Florida. You may also be able to purchase gap coverage directly from your dealership or lender, but it might be less costly if you buy it as an endorsement to your auto insurance policy.
Gap insurance companies in Florida
Some of the largest insurers providing gap coverage in Florida include:
- Allstate: Allstate offers gap insurance to policyholders who are the original owners or leaseholders of a new vehicle. The company also has an A+ financial strength rating from AM Best and ranked highly in J.D. Power’s 2021 U.S. Auto Insurance Study for Florida.
- Liberty Mutual: To get gap coverage from Liberty Mutual, you must be the vehicle’s first owner and purchase the coverage at the same time as your vehicle. Liberty Mutual has an A financial strength rating from AM Best; however, it is not ranked by J.D. Power in Florida.
- Progressive: Once added to your policy, Progressive’s Gap insurance does not expire as long as your vehicle is insured with them. When you no longer want gap coverage, it is important to remove this add-on from your policy. Progressive has an A+ financial strength rating from AM Best but is ranked below average for customer satisfaction by J.D. Power.
- Travelers: You must be the original owner and purchase your vehicle from a dealership to be eligible for gap coverage from Travelers. The insurer has an A++ financial strength rating from AM Best but ranks slightly below-average in J.D. Power’s 2020 study for Florida.
In addition, State Farm offers a similar program known as Payoff Protector for loans originated by State Farm Bank.
Frequently asked questions
How much is gap insurance?
The cost of gap insurance depends on whether you get this coverage through your dealership, lienholder or your auto insurer. However, it may be cheapest to buy gap insurance from your auto insurer, so it is important to check with them about the price before signing up elsewhere.
Is gap insurance required in Florida?
Gap insurance is optional according to Florida’s car insurance laws. However, it is worth considering if you will owe more on your auto loan than your vehicle is worth.
What is standalone gap insurance?
Standalone gap insurance is available from online providers who specialize in gap-only coverage. It’s usually more expensive than adding gap coverage to your existing auto insurance policy, but it’s an option if your current provider does not offer the coverage you need.
How do you cancel gap insurance?
That depends on your insurer, but you’ll need to speak to your insurance agent in most cases. In some cases, your coverage may expire on its own after some time. In other instances, you’ll need to cancel the coverage once your car is worth less than you owe on your loan.