What is gap insurance and do you need it?


It’s an unfortunate fact of life: cars and trucks go down in value as you own them. Which means that if the worst happens and your vehicle is totaled, it’s possible to owe more than it’s worth—and more than your standard insurance will cover. This is what we call a double whammy.

So what do we do?

That’s where gap insurance comes in. In Texas gap insurance is also known as a gap waiver or a debt cancellation agreement, according to Chastang Auto Group business manager Alvin Johnson:

“What it does is pay off any negative equity in a vehicle you have that is declared a total loss for any reason—wreck, flood, theft, hurricane. I even had one that was struck by lightning on I-10,” he says.

Let’s imagine a scenario that has been all-too-common in the Houston area in recent years: You park your car on the street, a major storm blows through, heavy rains cause it to flood, and your car insurance company declares it a total loss. At this point, the insurance company will tell you what the vehicle was worth pre-flood, and will write you a check for that amount, minus your deductible. But if you owe more to the lender than the vehicle was worth—also known as being upside-down—you are stuck covering the difference.

Gap insurance, at this point, would pay the gap between the vehicle’s value and the outstanding debt, up to 150 percent of a new vehicle’s MSRP or 150 percent of NADA retail value of a used car. Johnson says that gap insurance is not right for all buyers, but there are certain consumers who should strongly consider adding it to their financing package:

  • Anyone who is buying a car and not putting down a significant down payment (not including tax, title and license)
  • Those rolling negative equity from a trade-in into their new car purchase
  • Anyone who puts high mileage or heavy wear and tear on a car that would cause it to go down in value at a faster-than-average rate
  • Those choosing long-term financing of 60 months or more
  • Anyone who is on a tight budget.

“It adds $10 to $15 to your payment every month, maybe less, but that $10 per month is easier to handle than if the vehicle is a total loss and suddenly they owe the difference of $1,500 and they’ve got to get a new car,” says Wooldridge.

If you think gap insurance is right for you, it’s available through most insurance companies. Chastang  customers can also choose to purchase it when they finance a vehicle with us, but only at the time of purchase. For more information, call the Chastang Ford finance center at 713-628-5005.


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