Gap insurance in Michigan
If you’re financing or leasing a new vehicle, your dealership or lender may require you to purchase gap coverage (they may even offer it to you themselves and tack it onto your final loan amount). However, if you want to save money, you may want to look elsewhere.
These days many auto insurers offer gap insurance in Michigan. If you don’t mind researching the best car insurance companies, buying gap insurance in Michigan can be a painless experience that won’t crush your bank account in the years to come.
What is gap insurance?
Gap insurance (also known as guaranteed asset protection) covers discrepancies between what you receive from your insurance provider for your totaled vehicle after a covered claim and what you still owe to your lender.
All vehicles depreciate. When you receive an insurance payout from your provider, it is for the vehicle’s depreciated value, also known as its actual cash value (ACV). Your auto insurer determines this amount at the time of the loss. If you still have an auto loan balance for your vehicle when it is totaled, you may not get the full amount from your insurer that is needed to pay off your loan without gap insurance. With gap insurance, you can pay off your loan so that you’re 1) not making payments on two car loans (assuming you replace your car) and 2) not paying for something you no longer possess.
How does gap insurance work in Michigan?
Gap insurance is usually an option if:
- You have collision and comprehensive coverage on your vehicle
- The vehicle is not older than 2-3 years
- You are the original loan or leaseholder on the vehicle
- If you paid less than 20% on your down payment
A misconception about gap insurance is that it’s the same as ‘new car replacement’ coverage. The only thing gap insurance does is provide the difference between your ACV payout and the amount you still owe on it. Gap insurance will not pay for you to get a new vehicle, like new car replacement does.
When do you use gap insurance?
You can only use gap insurance if your car is deemed a total loss or unrecoverable from theft. This means gap insurance won’t cover a simple fender bender or cracked windshield. As long as the car can be repaired, gap insurance won’t apply.
Your car is stolen and never found. It’s a new car with a $30,000 loan on it. At the time of the theft, your vehicle is worth $25,000 due to depreciation. Your auto insurer pays your depreciated value (minus your comprehensive deductible), which means you still owe $5,000 to the lender. Because you purchased gap coverage, your provider pays the remaining loan balance.
You are in a parking lot and hit a pole while backing up. You have both collision and gap insurance on your auto policy. Because your vehicle is not totaled, gap insurance won’t provide any payout. However, your collision coverage will help cover your vehicle’s repairs (minus your deductible).
Gap insurance vs. other coverages
There are many types of car insurance. The key difference between gap insurance and other types of coverage is that gap coverage can only be purchased if you also have comprehensive and collision and it will only cover the difference between an ACV and the remaining loan amount.
Here’s how gap insurance compares to comprehensive and collision:
|What it covers||Pays the difference between an ACV payout and any remaining loan amount. Does not pay for repairs or replacement.||Covers damage done to your car for events such as fire damage, vandalism, weather-related damage and hitting an animal.||Covers damage sustained to your vehicle from events such as hitting another vehicle or object, such as a fence or tree.|
|Who offers it||Many auto insurers offer gap coverage, but not every insurer does. Some companies may list it as loan/lease coverage.
Gap coverage can be purchased at dealerships or through your lender as well.
|Comprehensive coverage can be purchased through most insurance providers.||Collision coverage can be purchased through most insurance providers.|
Where to buy gap insurance in Michigan?
Gap insurance providers are pretty common, but it’s true that some carriers do not offer it. All the same, it’s not difficult to find. Just remember that some gap insurance companies call it ‘loan/lease coverage’ instead of gap coverage.
If you’re financing or leasing your new vehicle, your dealership will probably offer gap coverage to you. However, it will most likely be added to your loan amount, which means you’ll be paying interest on it every month. If the dealership offers you an option to pay for it separately, it might be a good deal, but you will still want to cost-compare the quote with other companies. Most of the time, it’s cheaper to do gap coverage with your car insurance provider.
Gap insurance companies in Michigan
As a Michigan driver, you have a lot of options when it comes to where you can purchase gap insurance in most areas. If gap coverage is offered in your area, some national companies include:
- Allstate: Allstate is one of the largest car insurance companies in the U.S. by market share. It should come as no surprise, then, that it offers add-on coverages and a menu of discounts.
- Travelers: Even though it’s not always the cheapest car insurance company on the market, it still scores well in customer satisfaction surveys. Like Allstate, it has a fair amount of discounts, which you can use to help with your total insurance costs.
- Liberty Mutual: Liberty Mutual offers a host of coverage options, including gap coverage.
- Nationwide: Nationwide, known for offering unique discount options like SmartMiles and SmartRide, also offers plenty of coverage options, including gap coverage.
- Progressive: Progressive sells many types of insurance, including gap coverage — make sure you look for it under loan/lease coverage.
Local insurers near you may also offer stand-alone gap coverage, which allows you to pay an upfront fee for gap coverage. If you go this route, make sure you cost-compare it to a national provider, as major providers may offer a more favorable rate.
Frequently asked questions
How much is gap insurance?
The amount you’ll pay for gap insurance depends on your car and loan amount. This means there isn’t a set price drivers pay for gap insurance.
Is gap insurance required in Michigan?
Michigan state law does not require gap insurance, but if you are financing or leasing a new vehicle, the dealership or lender may require you to purchase it.
Where to buy gap insurance?
Gap insurance can usually be purchased through auto insurance providers, dealerships and lenders. However, there are restrictions on how long you can wait to purchase gap insurance, so if you are considering this coverage, you may want to purchase it while your vehicle is still considered new.