Gap insurance auto coverage is a necessity only if the following two conditions are present:
1. You finance the purchase of a new or used auto.
2. You make a down payment of under 20%.
And in a case where you take advantage of one of the numerous 0 down/60 month lending offers you definitely want gap protection.
Nevertheless even when you do require gap insurance, it's just necessary for as long as the outstanding loan balance exceeds the actual cash value of your car or truck. Usually what this means is a period of 21/2 to 3 years. So by the end of the 3rd year of installments the loan balance on your vehicle should be close to the cash value of your car or truck.
At this time the gap insurance could be terminated; but only if it was initially bought as a rider to a comprehensive policy sold by an insurance provider.
If, on the other hand, you purchase gap vehicle insurance protection from a auto dealer it cannot be terminated because you make a one time, up front payment.
Another significant difference between buying gap insurance from an insurance company or dealership is cost. Gap insurance coverage purchased using a auto dealer could cost varying from $500 - $700, while the same coverage bought through an insurance company will add only 5 or 6% to the price of your collision coverage, or about $30 annually.
So if your loan balance and the cash value of your automobile achieve parity within three years as suggested above, you'll have paid out a total of approximately $90 for gap protection as opposed to hundreds of dollars more for coverage from a auto dealer.
Now, as if $30 a year wasn’t affordable enough, it is possible to trim this amount even more. Since the cost of gap auto coverage is a percentage of the cost of comprehensive coverage, the less you pay for comprehensive collision coverage, the less you will pay for gap.
This provides a win, win scenario for each new car owner in need of gap insurance; especially if you have the time to evaluate a number of quotes from insurance carriers currently fighting for your business on television.