When financing a new car in North Carolina, the dealership may talk to you about purchasing gap insurance, in addition to full coverage (comprehensive and collision), prior to you driving off the lot. For some drivers, the convenience of purchasing gap insurance right there and then is a plus, you may find better savings if you inquire about gap insurance with a car insurance company. As with any type of insurance coverage, it is usually best to compare quotes from the best car insurance companies to get the best deal for gap coverage or other coverages you may need for a financed vehicle.
What is gap insurance?
Gap insurance in North Carolina covers the ‘gap’ between your car’s depreciated value and your remaining loan balance, should the car be declared a total loss or stolen. In essence, its purpose is to prevent you from having to make a loan payment on a car you no longer possess (or avoid multiple car payments, if you decide to purchase another car with an outstanding loan balance).
All car insurance boils down to financial protection, but with gap insurance it is specifically related to financial health. Gap insurance essentially helps prevent you from having outstanding debt by paying the remaining balance on your car loan (after actual cash value payout from the insurance company is factored in) when it is declared a total loss.
Gap is an acronym, which stands for guaranteed asset protection.
How does gap insurance work in North Carolina?
Before you start shopping for North Carolina gap insurance, a few requirements need to be kept in mind: not every car is eligible for gap insurance. Most insurers will only offer gap insurance when:
- The car is less than 2-3 years old
- You also have comprehensive and collision coverage
- You are the original loan/leaseholder
Not all financed vehicles will meet this criteria; even if most lenders require comprehensive and collision coverage, some financed vehicles are not new enough for gap insurance to be necessary or beneficial. In addition, if you are not the original loan or leaseholder, you may not be able to obtain gap insurance in North Carolina.
Gap insurance also should not be confused with ‘new car replacement’ coverage; there is a distinct difference between the two. Gap coverage pays the difference between your car’s depreciated value and what you still owe to a lender. New car replacement provides financial compensation to ensure the full replacement value of your vehicle is possible, after the original vehicle is totaled. While the replacement cost might be more than an actual cash value payout, it would not account for any outstanding balance on a loan that is more than the replacement cost of your current vehicle.
When do you use gap insurance?
You can only use gap insurance in North Carolina if the car is determined to be both undriveable and a total loss— which means a simple fender bender would not result in gap insurance being used.
Say you recently purchased a new car, and have approximately $25,000 left to pay the lender. A tropical storm runs through your area and knocks a tree over onto your car — the cost of repairs exceeds the vehicle value. The good news is that you have comprehensive insurance, so the damage is covered. The bad news is that you only receive a $20,000 payout after factoring in the deductible, because of the car’s depreciated value. However, you also purchased gap coverage, which pays the remaining $5,000 owed on the loan.
If in the same scenario, the vehicle was still operable or the cost of repairs did not exceed the actual cash value of the car, gap insurance would not come into play.
Gap insurance vs other coverages
Gap insurance is similar to other types of car insurance in that it protects your financial wellbeing after an accident. The big difference between it and other types of coverage is that, in a way, it is protecting your lender as much as it is protecting you. For this reason, some lenders may require gap insurance in the same way they require comprehensive and collision coverages.
While gap insurance is not required most of the time when financing, collision and comprehensive often are. Here is how all three compare with one another:
|What it covers||Pays the difference between an insurance payout for a total loss and the remaining loan balance.||Pays for any damages done to your car not related to driving (accept hitting a deer). Theft, vandalism, falling objects and weather related events are all covered with comprehensive coverage.||Pays for any damages your car sustains while it is moving (regardless of who was at fault). Accidents with other vehicles or objects (such as signs, fences, or parked cars) are all covered under collision coverage.|
|Who offers it||Can be purchased through many dealerships as well as insurance companies. If you do not see it with a provider, look for ‘loan/ lease coverage’ as it often goes by that name, too.||Most car insurance companies offer comprehensive coverage.||Most car insurance companies offer collision coverage.|
Where to buy gap insurance in North Carolina?
Although there are numerous gap insurance providers, do not be surprised if your insurer does not carry it. It is not a standard coverage to include on policies, and is only necessary with some newer, financed vehicles. It might also be called ‘loan/lease coverage’ with your insurer so if you are looking to purchase gap insurance from your provider, the company may have it available under the alternative name.
Dealerships can be a convenient way to obtain gap insurance in North Carolina. However, they may want to roll the cost directly into your loan, which means you will end up paying interest on the gap insurance and the loan balance. This can make gap insurance more expensive than if you purchase it separately from a car insurance company. As with any type of coverage, it is always recommended to shop around.
Gap insurance companies in North Carolina
- Allstate — Allstate offers a number of coverage options, including gap coverage, and offers 10 discounts to help lower your premium.
- Liberty Mutual — Liberty Mutual offers gap insurance in addition to a number of coverage options and discounts. In the 2020 J.D. Power Auto Claims Satisfaction study, Liberty Mutual scored an 822 out of 1,000 for customer satisfaction, as well.
- Nationwide — Nationwide offers gap insurance, along with a strong mobile app that makes filing a claim super easy. This could come in handy for drivers in need of filing a gap insurance claim.
- Progressive — Progressive offers a number of coverage options, including gap coverage. However, it calls this “loan/lease coverage” and not gap coverage.
- Travelers — Travelers offers gap coverage, as well as just about any type of insurance you need, including home and life. If you choose to bundle your necessary car insurance coverages with any other policies, you may save additionally on your premiums.
Frequently asked questions
How much is gap insurance?
The true cost of gap insurance changes with each driver and car, but the biggest factor that affects how much you pay is where you purchase it. If you purchase it from a dealership, you will likely spend a lot more than if you were to go through a traditional insurance company, since you will be paying interest on your loan and the coverage, in most cases.
Is gap insurance required in North Carolina?
North Carolina state law does not require its drivers to have gap coverage. Given lenders typically require comprehensive and collision coverage, this may need to be taken into account when considering where you obtain gap insurance.
How do you cancel gap insurance?
Most drivers should be able to cancel their gap coverage online through their insurer’s website. However, you could also likely call and speak with an agent, as well.