When buying a new car, the excitement of choosing the perfect model, color, and features can be thrilling. But along with the joy of a new purchase comes the responsibility of protecting your investment. One of the most crucial decisions you may face is whether to get GAP insurance from the dealer or an insurance company. This decision isn’t just about cost—it’s about understanding the benefits, drawbacks, and which option suits your unique situation best.
GAP (Guaranteed Asset Protection) insurance covers the difference between what you owe on your auto loan and the car’s actual cash value if it’s totaled or stolen. It ensures you aren’t left paying for a vehicle you no longer own. But the big question remains: Should you buy GAP insurance from the dealer or from an insurance company? Let’s explore this in detail.
Learning GAP Insurance
Before diving into where to purchase GAP insurance, it’s essential to understand what it is and why you might need it.
What is GAP Insurance?
GAP insurance covers the “gap” between the amount you owe on your car loan and the car’s actual cash value if it’s totaled or stolen. Cars depreciate rapidly—up to 20% in the first year—meaning you might owe more on your loan than the car is worth. This is where GAP insurance steps in.
Imagine you bought a brand-new car for $30,000. A year later, it’s worth $24,000, but you still owe $28,000 on your loan. If the car is totaled, your standard auto insurance policy would cover the actual cash value—$24,000. Without GAP insurance, you’d be responsible for paying the remaining $4,000 out of pocket.
Who Needs GAP Insurance?
GAP insurance isn’t for everyone, but it can be a lifesaver for certain buyers, such as:
- People who finance a new vehicle with a small down payment (less than 20%)
- Those with long-term loans (60 months or more)
- Buyers of high-depreciation vehicles
- People who lease their vehicles (some lease agreements require GAP insurance)
Buying GAP Insurance from a Dealer
How Does Dealer GAP Insurance Work?
When you buy a car from a dealership, the salesperson will likely offer you GAP insurance as an add-on to your financing. The cost is typically rolled into your monthly loan payments.
Pros of Getting GAP Insurance from a Dealer
- Convenience and Immediate Coverage
- Purchasing GAP insurance from the dealer is quick and straightforward. Since you’re already at the dealership finalizing your car purchase, it’s convenient to bundle GAP insurance into your loan.
- You get immediate coverage from the moment you drive off the lot.
- No Upfront Cost
- Since the cost is added to your loan, you don’t need to pay out of pocket. This can be appealing if you’re already spending a significant amount on a down payment and other fees.
Cons of Getting GAP Insurance from a Dealer
- Higher Cost
- Dealer GAP insurance is typically more expensive. The convenience comes at a price, with some dealers charging up to four times more than what an insurance company would.
- Since the cost is added to your loan, you’ll pay interest on it, increasing the total amount paid over time.
- Non-Refundable and Limited Flexibility
- In many cases, dealer GAP insurance is non-refundable. If you pay off your loan early or refinance, you may not get any money back.
- You’re also limited to the dealer’s terms and coverage options, which may not be as comprehensive as those from a specialized insurance provider.
Buying GAP Insurance from an Insurance Company
How Does Insurance Company GAP Insurance Work?
You can purchase GAP insurance as an add-on to your existing auto insurance policy. Many major auto insurance providers offer GAP insurance at a fraction of the cost compared to dealerships.
Pros of Getting GAP Insurance from an Insurance Company
- Lower Cost and More Savings
- Insurance companies generally offer lower rates for GAP coverage compared to dealerships. The average cost ranges from $20 to $40 per year, significantly cheaper than dealer rates.
- There are no additional interest charges, as you’re paying for the insurance separately, not as part of your loan.
- Flexible Terms and Comprehensive Coverage
- Insurance companies provide more flexibility with coverage terms and conditions. You can customize your policy to fit your needs.
- If you refinance your loan or pay it off early, you can easily cancel the GAP insurance and receive a pro-rated refund.
Cons of Getting GAP Insurance from an Insurance Company
- Additional Effort and Paperwork
- Unlike the convenience of buying at the dealership, you’ll need to contact your insurance company separately and go through the process of adding GAP coverage to your policy.
- This might involve more paperwork and a separate payment schedule.
- Eligibility Requirements
- Not all vehicles qualify for GAP insurance through auto insurers. Some companies may have restrictions on vehicle age, mileage, or loan-to-value ratio.
Dealer vs. Insurance Company: A Comparative Analysis
| Factor | Dealer GAP Insurance | Insurance Company GAP Insurance |
| Cost | Higher, with added interest on loan | Lower, usually $20-$40 per year |
| Payment Method | Rolled into loan payments | Separate from auto loan |
| Flexibility | Limited options and non-refundable | Customizable and pro-rated refunds available |
| Convenience | Quick and immediate coverage | Additional effort to contact insurance |
| Eligibility | Typically offered for all financed cars | May have restrictions on vehicle type |
Which Option is Best for You?
Choosing between GAP insurance from a dealer or an insurance company depends on your unique situation. Consider the following scenarios:
- Choose Dealer GAP Insurance if:
- You prioritize convenience and want immediate coverage.
- You’re comfortable with a slightly higher cost for the sake of simplicity.
- Choose Insurance Company GAP Insurance if:
- You want to save money and have more flexible coverage options.
- You don’t mind making a separate transaction with your insurance provider.
Frequently Asked Questions
- Is it better to get GAP insurance from the dealer or insurance company?
- It depends on your priorities. If you value convenience, go with the dealer. If you want to save money, choose an insurance company.
- Can I get GAP insurance after buying a car?
- Yes, you can add GAP insurance through an insurance company anytime within a certain period after purchase, typically within the first year.
- Is GAP insurance mandatory?
- No, GAP insurance is optional. However, it’s highly recommended for people who finance a new vehicle with a low down payment or long-term loan.
- How much does GAP insurance cost from an insurance company?
- The average cost is between $20 and $40 per year, which is significantly cheaper than dealer-provided GAP insurance.
- Can I cancel dealer GAP insurance?
- It depends on the dealer’s policy. Some dealerships offer refunds if canceled within a specific period, while others are non-refundable.
Conclusion
So, should you get GAP insurance from the dealer or an insurance company? The answer depends on your personal circumstances, financial priorities, and the level of convenience you want. While dealer GAP insurance is convenient and offers immediate coverage, it’s generally more expensive and less flexible. On the other hand, insurance companies provide more affordable and customizable options but require a bit more effort to purchase.
To make the best decision, compare costs, terms, and coverage options from both sources before buying your new car. By understanding your needs and budget, you can confidently choose the right GAP insurance that protects your investment without breaking the bank.
How Ontario Insurance Can Help with GAP Insurance
Protecting your new car investment doesn’t have to be complicated or costly. At Ontario Insurance, we provide affordable and flexible GAP insurance options tailored to your needs. Our experienced insurance advisors are here to guide you through the process, helping you understand your coverage options, premiums, and how to get the most value from your policy.
Don’t let unexpected costs catch you off guard. Contact us today to get expert advice and the best GAP insurance coverage for your peace of mind!
