Guaranteed Asset Protection, commonly known as gap insurance, is a form of coverage that could be beneficial for Florida drivers financing or leasing a vehicle. Due to Florida’s higher interest rates, new cars often depreciate rapidly, sometimes leaving the vehicle’s value lower than the outstanding loan amount soon after purchase. If the car is stolen or totaled, drivers might face financial gaps, needing to pay off the loan out of their own pockets. Gap insurance is intended to cover these potential expenses. Bankrate has compiled this guide to explain what gap insurance entails and to clarify whether it is mandatory in Florida.
What is gap insurance?
Guaranteed Asset Protection, or gap insurance, is an optional add-on to your auto insurance policy that becomes particularly valuable when you buy a new vehicle. It covers the difference between what you owe on your auto loan and the actual cash value your insurance company pays out if your car is stolen or totaled.
Here’s how it works: Let’s say you still owe $30,000 on your auto loan, but due to depreciation, your car’s current market value is only $26,000 at the time it’s totaled. Typically, your insurer will pay out the market value minus your deductible, leaving you responsible for the $4,000 difference to your lender. In this scenario, gap insurance would step in to cover that remaining $4,000, ensuring you’re not left with out-of-pocket expenses beyond your deductible while also needing to replace your vehicle.
How does gap insurance work in Florida?
Gap insurance is not mandatory in Florida, similar to other states. However, it can be a prudent choice under certain circumstances, especially when financing a new vehicle or leasing one. Here are key situations where gap insurance may be beneficial:
- Low Down Payment: Opting for less than a 20 percent down payment.
- Extended Loan Terms: Taking out an auto loan longer than 60 months, such as 72 or 84 months.
- High Interest Rates: Accepting a loan with a high interest rate.
- Front-Loaded Interest: Agreeing to a loan with front-loaded interest terms.
- Rolling Over Debt: Rolling over a previous car loan balance into your current loan.
For used vehicles, gap insurance is less common. Many insurers require the vehicle to be under two or three years old to qualify for gap coverage, and coverage may expire after a certain age of the vehicle. Some insurers may also stipulate that you must be the original owner of the car to purchase gap insurance. To determine if gap insurance is suitable for your vehicle, it’s advisable to consult with an insurance agent.
It’s important to note that gap insurance differs from new car replacement coverage. With gap insurance, if your car is declared a total loss and you file a claim, your insurer will pay your lender the difference between the car’s actual cash value and the amount you owe on the loan. In contrast, new car replacement coverage helps you buy a brand-new vehicle of the same make and model or even a newer model, depending on the insurer’s terms. Some insurers offer both options, while others may limit you to choosing one.
When do you use gap insurance?
Gap insurance only applies if your car is deemed a total loss before your gap coverage expires. It does not cover routine repairs for accidents or mechanical failures.
For instance, imagine you drive your new car off the lot and collide with a telephone pole, causing irreparable damage. Despite having made only a 5 percent down payment on your auto loan, your car’s value would typically depreciate to about 91 percent immediately, as estimated by Edmunds. Consequently, your auto insurer would likely compensate you for 91 percent of your vehicle’s value (after subtracting your deductible), but you would still owe your lender the remaining 95 percent. Gap coverage would step in to bridge this financial gap.
Florida gap insurance vs. other coverage types
Gap insurance, unlike comprehensive and collision insurance, is an optional coverage that isn’t offered by all insurers. It specifically protects you in specific situations and often ends as your car ages. On the other hand, comprehensive and collision insurance are more common and essential for covering repair expenses resulting from various incidents. Lenders usually require these types of coverage if you finance your vehicle. Here’s a comparison of these insurance types:
| Gap insurance | Comprehensive | Collision | |
|---|---|---|---|
| What it covers | The remaining amount owed to the lender when a vehicle is stolen or totaled | Provides coverage for vehicle damage and loss caused by theft, hail, hitting an animal, and other non-collision incidents | Provides coverage for damage to your vehicle resulting from a collision with another vehicle or property |
| Who offers it | Your dealership, lender or an auto insurance provider | Most insurance providers | Most insurance providers |
All three types of coverage—comprehensive, collision, and gap insurance—are crucial for new vehicles. Insurance providers typically mandate comprehensive and collision coverage before allowing you to add gap coverage to your policy.
How to buy Florida gap insurance
When buying a new car, you’ll probably receive offers for gap insurance from your lender or dealership. However, several major car insurance providers in Florida also provide gap insurance. The cost of gap insurance can differ among providers, but opting for gap insurance through your car insurance company might save you money compared to dealership or lender offerings, which often include interest and higher prices when bundled into your loan payments.
Gap insurance companies in Florida
Here are some of the top car insurance companies in Florida offering gap coverage:
- Allstate: Allstate provides gap insurance to new vehicle owners or leaseholders. It boasts an A+ financial strength rating from AM Best and is highly rated in J.D. Power’s 2023 U.S. Auto Insurance Study for Florida.
- Liberty Mutual: Gap coverage from Liberty Mutual is available to first-time vehicle owners if purchased simultaneously with the vehicle. Liberty Mutual holds an A financial strength rating from AM Best but is rated below average by J.D. Power in Florida.
- Progressive: Progressive’s gap insurance remains valid as long as your vehicle is insured with them, with the option to remove it when no longer needed. Progressive holds an A+ financial strength rating from AM Best but ranks slightly below average in customer satisfaction by J.D. Power.
- Travelers: Eligibility for gap coverage from Travelers requires being the original owner and purchasing the vehicle from a dealership. Travelers has an A++ financial strength rating from AM Best but is rated slightly below average in J.D. Power’s 2023 study for Florida.
Additionally, although State Farm does not offer traditional gap insurance, it provides a similar program called Payoff Protector for loans originated through State Farm Bank.