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Farmers Car Insurance Customers May Want To Add Its Version Of GAP Coverage To A Policy

auto insurance application

Adding extra to your policy. Image Credit: Author Owned.

When you shop for car insurance, there are literally dozens of coverage options and types of add-ons available with any policy and through any insurer. Knowing which ones you should have in place can be a challenge. If you are financing the purchase of a newer car or if you have a car you are leasing, you may want to seriously consider adding a GAP option to your car insurance coverage. If you happen to be a Farmers car insurance customer, they offer their own version of this option.

Some GAP basics

GAP stands for Guaranteed Asset Protection (or in the case of car insurance, Guaranteed Auto Protection), though some insurance companies refer to this as a loan/lease payoff option. Simply put, GAP covers the difference between the amount you still owe to a car loan or a lease and the amount of money the car is determined to be worth should you suffer a total loss. In essence, GAP car insurance protects you in the event your car is totaled in an accident or if your car is stolen or lost in some other fashion.

You may wonder how it could be possible that you could still owe something if your car is totaled and you receive a total settlement from your insurer. This happens because of a single word: depreciation.

We’ve probably all heard the adage The second you drive a new car off the lot, it loses half its value. While not quite that extreme, depreciation can occur rapidly for many cars. In fact, the National Automobile Dealers Association (NADA) warns car owners that the value of a new car can decrease between 17 and 30 percent within the first 18 months of ownership.

Most car loans have an amortization schedule where fees and interest are front-loaded for the first few months or years and most leases have fees and charges attached that also require higher front-loaded payments. The rub here is that car insurance coverage is geared to the market value of your car should it be severely damaged or totaled, not the loan or replacement value.

Audi car

Having extra coverage for your beautiful car could keep yourself at ease. Image Credit: Rafael

Farmers suggests to its customers that some form of GAP be put in place should any of the following circumstances apply:

  • You’ve made a down payment on a new car loan of 20 percent or less

  • You’ve taken negative equity from a previous car loan and rolled it into a new car purchase

  • You have a car loan where the term is 72 months or longer

  • You’ve bought a car that depreciates quickly (like a sports car)

If you’re leasing a car, most leases have a clause requiring you to have GAP in place and leasing companies (and many financial institutions) will offer GAP protection with your loan or lease. The terms of these policies are not always to your advantage, especially compared to adding it to your existing car insurance policy.

Classic car

Classic car. Image Credit: Juriën Minke Creative Commons license.

The Farmers approach

Farmers offers a New Car Pledge program that can be added along with full GAP car insurance. With the pledge, Farmers will replace a new car (without depreciation) if it is deemed a total loss within the first two years of ownership or the first 24,000 miles of driving (whichever comes first).

Under this program, not only would you have any outstanding loan or lease balance retired in the event of a total loss of your new car, you won’t’ have to go through the hassles of re-acquiring a new or replacement car.

Depending on the make and model of your car, where you live and the full spectrum of coverage options and levels you have in place on your existing policy, this additional GAP car insurance from Farmers can be added for as little as $10-12 in additional premium over the course of your coverage term.

Suffering a total loss of a car is a horrible experience and the last thing you will need in such an event is a bill from a lender for a car that, literally, doesn’t exist anymore.

Jeff Davidson

Jeff Davidson

Jeff Davidson is a writer with Reply!. He has more than 25 years of experience in market research, public relations, consulting, writing and sales work in all areas of the auto industry.

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