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With most new car purchases or lease agreements, you may be asked if you want to buy gap insurance. This coverage comes at an additional cost but may be worth it to you when buying or leasing a new or used car, depending on your financial concerns or desired level of peace of mind. Weigh the pros and cons of buying gap insurance in New Jersey from a car dealership or insurance company to determine if this optional coverage makes sense for you and your budget.
What is gap insurance?
Gap insurance is an optional coverage you can buy from either a dealership or insurance provider when you finance or lease a new car. If the car is totaled in a car accident or covered claim and the actual cash value is less than what you owe, gap insurance pays the difference — or the “gap” — between the actual value and your loan payoff amount.
How does gap insurance work in New Jersey?
In New Jersey, gap insurance waivers offered by dealers and lenders must be made part of the purchase contract. Buyers are offered a minimum of 30 days free-look period where they can get a full refund if they decide not to keep gap insurance coverage. If the finance agreement is terminated before paid in full, any refund due must be paid to the borrower within 90 days of termination.
There are a couple of misconceptions about gap insurance. For starters, it generally only applies to brand new car models or one model year older. If you buy or lease an older car, you will likely not be offered (or be eligible for) gap insurance. A car insurance company may have its own requirements or criteria to meet that differs, as well.
Gap insurance is not the same as new car replacement coverage. Some car insurance companies offer new car replacement, which pays enough cash value to replace your totaled car with a brand new car of the same make and model. Eligibility varies by insurance company, but usually is limited to a car that is two-years-old or newer.
When do you use gap insurance?
There is only one instance where gap insurance can be used — when your car is involved in a covered claim and is deemed a total loss by the car insurance company. You cannot use gap insurance for any accident, or if the car is being repaired.
For example, if your car is damaged but fixable, you are still responsible to pay your car payment, even if the car is in the shop for a length of time to be repaired. However, if your car is deemed a total loss and not fixable, gap insurance may be used. If the actual cash value of your car is $10,000 and you owe $8,000, the insurance company will pay the entire loan off. But if you owe $12,000, gap insurance will pay the remaining $2,000 to the lender instead of you having to pay the amount to satisfy the loan.
Gap insurance vs other coverages
Gap insurance is not similar to other coverages offered by car insurance companies. While physical damage coverages fix your car or pay the value to total it, gap insurance only pays if the car is totaled in a covered claim.
|What it covers||The gap created between actual cash value of vehicle and loan/lease payoff||Hitting an animal
Theft of the car
Broken windows and windshields
|Damage to the car caused by hitting another car or stationary object like a fence|
|Who offers it||Car insurance companies
Car dealerships (offered through a lender or insurance company)
|Car insurance company||Car insurance company|
Where to buy gap insurance in New Jersey?
There are several places you can buy gap insurance in New Jersey. Some car insurance companies offer gap insurance as an optional add-on coverage to an insurance policy. Some insurance companies may offer standalone coverage, but this is not common.
Lenders or finance companies also offer gap insurance if you are buying a car in New Jersey. If you purchase or lease your car from a dealership in New Jersey, they may offer you gap insurance coverage. Some lenders will require a single payment for the gap insurance coverage while others may roll it into your monthly payment. New Jersey law requires gap insurance be provided as an insurance policy or a contractual obligation between the buyer and the finance company.
Gap insurance companies in New Jersey
- Nationwide: In New Jersey, you can buy gap insurance as an add-on coverage with your Nationwide car insurance, as long as you have collision coverage.
- Plymouth Rock Assurance: New Jersey drivers can purchase gap insurance as a standalone option with Plymouth Rock or as part of the optional Assurance Premier upgrade package offered on a car insurance policy. Comprehensive and collision coverage is required.
- NJM Insurance: NJM offers gap insurance as an optional add-on coverage for auto policyholders. Coverage must be added within 30 days of car purchase and there are other requirements that must be met to be eligible.
- Credit Union of New Jersey: CUNJ offers gap insurance for an additional cost for borrowers who chose the credit union to finance their new car purchase. You have 60 days to decide to keep it and if you do not, you can get a full refund.
- Planet Honda of New Jersey: If you are looking to buy a new car, Planet Honda of New Jersey offers gap insurance to eligible buyers. The Gap Insurance Contracts offers specifics about terms, conditions and exclusions.
- American Guardian Warranty Services: AGWS offers Compass Gap, which will pay the difference if your car is totaled, plus waive up to $1,000 of your deductible.
Frequently asked questions
How much is gap insurance?
The cost of gap insurance varies and tends to cost more when you buy it from a dealer or lender than if you buy it as part of your car insurance policy. If you are considering buying gap insurance in New Jersey when you buy or lease a new car, get a quote from your car insurance company and ask about the costs when financing your purchase.
Is gap insurance required in New Jersey?
Gap insurance is not a requirement in New Jersey. It is an optional coverage offered by some insurance companies, lenders, dealerships and warranty companies.
What is standalone gap insurance?
Standalone gap insurance is a policy that provides coverage only for gap insurance. If you buy gap insurance from a dealer or lender, it will most likely be a standalone policy. If you buy gap insurance from an insurance company, it is usually an optional add-on coverage included in your car insurance policy.