When buying a new vehicle, one would think that getting a car insurance should be automatic - but not for one customer. In fact, when her friendly car salesman offered her complimentary insurance, the offer was declined unexpectedly. The customer rejected the free insurance, stating that God "will take care of it."
"So, sadly, in the car business, needless to say, there's a lot of customers that listen to their family members and friends, and they tell them, 'Do not buy anything in the finance office,'" TikTok content creator @costacreatescardeals said.
Faith And Finance: The Gap Insurance Dilemma
These instances are not surprising, especially in a time when the internet is teeming with "tips" a buyer should remember before buying a car based on statements from social media influencers and industry people alike. For instance, social media influencer Roxy Stylez went viral last month to expose car salespeople's "evil" strategies to exploit unwary customers - making her followers wary of anything a dealership offers.
However, @costacreatescardeals disagrees with advice recommending against purchasing anything from the finance office. "I had a customer yesterday who bought a car from us, and she had a 14.8 rate on a vehicle with no money down," Costa explained in a new TikTok video. "So, she was immediately rolling into a negative equity loan."
Costa advised the woman to purchase GAP coverage on the loan. GAP stands for Guaranteed Asset Protection. According to the Consumer Financial Protection Bureau, "GAP is an optional product intended to cover the difference between the amount you owe on your auto loan and the amount the insurance company pays if your car is stolen or totalled."
Drea, a used Tesla owner, recently learned the importance of GAP insurance firsthand after being involved in an accident. Her standard insurance policy provided insufficient coverage for the remaining loan balance, leaving her with $700 monthly payments for a vehicle she could no longer operate.
GAP insurance would have mitigated this financial burden by covering the difference between the car's depreciated value and the outstanding loan amount in the event of a total loss. Similar to the previous case, the woman Costa offered complimentary insurance declined, stating, "'I do not need GAP," she said. "My mom told me, do not buy GAP, do not buy anything in this office."
@costacreatescardeals When trying to do the right thing goes wrong!#dealershiplife #carsoftiktok #carsalesman #financemanager #fypage #salestips #gap #loan
♬ original sound - costacreatescardeals
Accustomed to this response, Costa offered an even more enticing deal to assist the woman. "I'll even discount the price of my vehicle to where you have it for free,'" he proposed. She remained resolute in her refusal.
"Listen, I do not need GAP. I already have G-O-D on my side, and I trust him to where if anything happens, he will take care of it," she said. At that point, Costa realised his efforts were futile. "I was like, 'Alright, don't call me when the vehicle gets totalled out,'" he said. "'God willing, it doesn't. And G-O-D's on your side.' But I tried to do the right thing."
Despite her unwavering faith, securing the free insurance would have been prudent for the woman. Seed Time, a Christian financial organisation, advocates for insurance coverage, even for those with strong religious beliefs.
"Many Christians refuse insurance simply because they argue that it takes God out of the picture. However, God's Word instructs us to prepare for good and bad times," they wrote. "Insurance will never cover every catastrophe, but it can be a wise way to protect the assets and income God blesses you with."
Seed Time further asserted that purchasing insurance aligns with biblical principles, including protecting oneself and others. Although many might deem the woman's decision to decline free insurance unwise, Costa suspects another individual may have influenced her choice more strongly.
"I guess she trusted her mom more," he said. "Which, yeah, of course, you're gonna trust your mom more." While this customer's faith played a significant role in her decision, it's essential to weigh the pros and cons objectively when considering GAP insurance. Let's explore determining if this coverage is necessary and financially beneficial.
What Does Gap Insurance Cover?
Gap insurance bridges the financial gap when a financed vehicle is totalled. If your car's value exceeds your outstanding loan balance, this coverage pays the difference after a total loss claim due to theft or accident.
When filing a total loss claim, your insurer typically pays your vehicle's actual cash value (ACV). If you owe more on your car loan than the ACV, you're "upside down" or have negative equity. Gap insurance covers this difference, preventing you from being responsible for the remaining loan balance after a total loss.
Consider this scenario: Your financed vehicle is totalled in an accident. Your insurer determines the car's actual cash value (ACV) to be $8,000, but you still owe $10,000 on the loan. Gap insurance covers the remaining $2,000, ensuring your loan is paid off.
New cars depreciate rapidly, especially in the early years. Suppose your new vehicle is totalled during this period. In that case, you might owe the bank more than the car is worth. The MarketWatch Guides Team says Gap insurance covers this shortfall, protecting you from unexpected financial burdens.
Do You Need Gap Insurance?
Gap insurance is unnecessary if you own your vehicle outright. However, if your car is financed, it's worth considering. The decision hinges on your down payment, loan term, and driving habits.
Cars typically depreciate significantly within the first few years. If you make a small down payment and have a lengthy loan term, the chances of owing more than your car's value in case of a total loss increase. Gap insurance can protect you from this financial setback.
Is Gap Insurance Worth It?
Gap insurance can be a valuable financial safeguard in certain situations. Here's a breakdown of when it might be beneficial:
You made a small down payment. The larger your down payment, the less likely you are to be upside down on your loan.
You have a long finance period: The longer your loan term, the more time your car has to depreciate, increasing the risk of negative equity.
You drive a lot: Higher mileage can accelerate a vehicle's depreciation.
You purchased a vehicle that depreciates quickly: Some car models depreciate faster than others.
Ultimately, purchasing gap insurance depends on your financial situation and risk tolerance. To calculate the potential value of Gap insurance:
- Use Kelley Blue Book or similar tools to determine your car's value—project future values for each year of your loan term to account for depreciation.
- Review your loan agreement to determine the outstanding balance for each loan year.
- Subtract your car's projected value from your loan balance for each year. A positive difference indicates potential coverage needed.
- Estimate the total cost of gap insurance over the coverage period.
- Weigh the potential savings from gap insurance against its cost. Consider your financial situation and risk tolerance.
Generally, new car buyers benefit most from gap coverage within the first three years.
How Much Does Gap Insurance Cost?
The cost of gap insurance can vary significantly based on several factors:
- Dealership prices are higher than standalone policies or those bundled with your regular auto insurance.
- Factors like make, model, and year can influence the cost.
- Your insurance score can impact the premium.
Generally, you can expect to pay:
- Dealership or lender: A one-time fee ranging from $500 to $700.
- Standalone policy: A one-time fee of around $200 to $300.
- Bundled with auto insurance: An annual premium increase of approximately $40 to $60.
Where to Buy Gap Insurance?
Gap insurance is available from most major car insurance companies, although only sometimes offered. Alternatively, when you purchase, you can obtain gap coverage through your car dealership or lender. However, this option typically comes with a higher price tag as the cost is incorporated into your auto loan, accruing interest.
It's important to understand that insurance companies exclusively sell gap coverage as an add-on to existing policies. This means you cannot hold a Progressive policy while securing gap insurance from State Farm. Consistency with your primary insurance provider is essential.
Gap insurance can be a valuable asset when purchasing a new car. This coverage bridges the financial gap between your car's depreciated value and the outstanding loan balance in the event of a total loss.
If your lender mandates gap insurance, it is advisable to explore options through your insurance company before accepting the dealership's offer, as it may be more cost-effective.
