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Gap insurance in Kentucky

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Gap insurance in Kentucky is worth knowing about if you are financing a new car purchase. This is because, like many types of insurance, it can help prevent financial distress. However, even though it offers financial protection for people with a newer, financed car, not every company offers it. If you are looking for gap insurance in Kentucky, the best car insurance companies that offer it will also likely vary in cost.

What is gap insurance?

Gap insurance is an optional type of coverage you can purchase to help cover the difference between your car’s depreciated value and its remaining loan amount, in the event it has been deemed a total loss by your insurance company.

Every car depreciates over time, but this is most significant with brand new or newer cars, which depreciate the most once driving off the lot. If your car is totaled or stolen, your insurance company is not going to pay you the exact amount you paid for it. The depreciated value paid out by your insurer in this case may not be enough to satisfy the loan. Gap coverage, therefore, is a way to ensure you are not still left with an outstanding loan balance in the event the vehicle is damaged beyond repair.

How does gap insurance work in Kentucky?

If you have a loan on your car, you may already be considering Kentucky gap insurance. However, gap insurance is not available to every financed car in this state. To be able to buy gap insurance in Kentucky, the car must:

  • Be less than 2-3 years old
  • Have both comprehensive and collision coverage
  • Not have had any other loan/leaseholders

You also need to purchase gap insurance at the same time as the car. If working through an insurance company to save money, you must purchase it before you sign off on the loan and drive the car off the lot.

There is a common misconception that the only prerequisite to purchasing gap insurance is that the car has a loan on it, which is not the case in Kentucky, or often, in other states as well.

Another misconception about gap insurance is that it is basically the same as ‘new car replacement.’ Although there are some similarities, this is also not true. Gap coverage will only pay off the remaining balance on a car loan after the insurance actual cash value has been accounted for. It will not provide you with financial compensation to obtain a new car. That said, it could be easier for you to get a new car loan in the future because your debt-to-income (DTI) would be lower, if the other loan is already paid off.

When do you use gap insurance?

Gap insurance applies in situations when your vehicle is damaged beyond repair and determined to be a total loss by your insurance company. To be deemed a total loss, the repairs must be more than the car’s actual market value. This means a cracked windshield or damaged bumper are not going to be enough to activate gap coverage. If the actual cash value of your vehicle is less than the amount on the loan, gap insurance would come into play.

Consider the following example:

A storm goes through your hometown and knocks down a lot of trees, one of which lands on top of your car. Because you have comprehensive insurance, your insurance company is willing to pay for any damages. An agent comes out and determines that your car is a total loss. After factoring in the deductible and depreciation, your insurance company provides a payout in the amount of $20,000, leaving about $7,000 still owed to your lender. Gap insurance would cover the remaining $7,000 in this example.

Gap insurance vs other coverages

Many types of car insurance can help provide financial protection, and in this sense, gap coverage is similar. However, one key difference between Kentucky gap insurance and other types is that you must have collision and comprehensive to be able to purchase it. Plus, the only event it protects you from is a total loss, and to be determined a total loss the damage or loss must be an event that is covered under either collision or comprehensive.

Lastly, gap insurance only applies if there is a payout difference between the actual cash value of your totaled vehicle and an outstanding balance on the loan. If you have paid down your loan to the point that there is no discrepancy in value, gap insurance may not apply at all in a total loss.

Here is how gap insurance compares with comprehensive and collision coverage:

Gap insurance Comprehensive Collision
What it covers Pays the difference between a car’s depreciated value and the amount still owed to a lender. Only activates if the car is considered to be a total loss. Activates when your car is damaged in a non-collision event. Weather damage, falling objects, fire and theft are all covered perils. Activates when your car is damaged while moving. Collisions with other vehicles, fences, signs and trees are all covered perils.
Who offers it Can be purchased through some dealerships, but many insurance companies offer it, too.
Note: It is sometimes listed as loan/lease coverage.
Most companies offer comprehensive coverage. Most companies offer collision coverage.

Where to buy gap insurance in Kentucky?

You can purchase gap insurance through many dealerships at the time of purchase, but there is a big factor to consider: the dealership will most likely want to tack on the extra costs on top of your loan. By doing this, you will be paying interest on the gap insurance and the loan. The other drawback to purchasing gap insurance through a dealership is that dealerships may charge more money for gap insurance than a regular insurance company, even without interest.

You may save more overall by purchasing gap insurance through an insurance company. Since not all Kentucky car insurance companies offer gap insurance, you may have to ask around to determine availability and to compare quotes. It is not uncommon for insurance companies to call gap insurance ‘loan or lease coverage’ instead of gap coverage, so keep that in mind while you are searching.

Gap insurance companies in Kentucky

All of the insurance companies below also happen to be gap insurance providers in Kentucky:

  • Travelers — Travelers offers many insurance products, including gap coverage. Plus, if you own your home, you could receive a multi-policy discount by using Travelers for both your car and home insurance needs.
  • Nationwide — Its gap insurance option can be purchased whether or not you have an auto policy with them, which is a plus for drivers who need gap insurance for just a short period of time.
  • Progressive — Progressive offers a number of different coverage options (gap coverage being one of them). This is one car insurance company that calls gap coverage “loan/lease coverage.”
  • Allstate — Allstate sells gap coverage in addition to numerous other types of coverage. It also offers discounts for further savings on your car insurance policy which could help you save overall.
  • Liberty Mutual — You will find gap coverage with Liberty Mutual along with just about every other type of coverage option on the market. You must be the car’s first owner and this insurance must be purchased at the same time as you purchase your car.

Frequently asked questions

How much is gap insurance?

The cost of gap insurance varies with each person and car purchase. Depending on where you procure gap insurance in Kentucky, the dealership and car insurance company costs could vary widely.

Is gap insurance required in Kentucky?

No, gap insurance is not required by Kentucky state law. If you do opt for gap insurance, you must do so at the time you purchase the vehicle, and it requires having comprehensive and collision coverages (also required by most vehicle financiers).

Do you have to purchase gap insurance through the same company as your car insurance?

No. You can purchase gap insurance through any company or dealership operating in your state that offers this coverage. It does not have to be the same company you also purchase car insurance through, but you may find this to be the simplest and most cost-effective option, since gap insurance in Kentucky necessitates having comprehensive and collision coverages on your policy as well.

Written by
Lauren Ward
Insurance Contributor
Lauren Ward has nearly 10 years of experience in writing for insurance domains such as Bankrate, The Simple Dollar, and She covers auto, homeowners, life insurance, and other topics in the personal finance industry.
Edited by
Insurance Editor