Gap Insurance?

[DryHeat]

I put insurance in quotes because one should only "insure" for risks that they can't account for. If you would be destitute because your Maverick totaled value was less than your loan, I would humbly suggest you need to have more in an emergency fund.

I don't quite understand your point here.

I insure for lots of risks that would not leave me destitute. For example, if my house burned down, I am financially able to build or buy another one. But that doesn't mean I'm not going to insure my house. I prefer to spread that risk over a larger pool of homeowners.

In other words, just because you can self-insure doesn't mean that it's a wise choice.

That said, I'm not in favor of intentionally getting into an "under water" situation -- which is what gap insurance is designed for. But I recognize that some people, at certain times in their lives, may need or want to do that.

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[jmjjr6]

The alleged build date for my Hybrid Lariat Lux package is 2/7. As I plan ahead, I am curious to the purpose of gap insurance and how it works. I believe gap insurance is there in case something tragic happens to a relatively new vehicle and we end up owing more than what we paid. However, we are in a strange world where when I drive the new Maverick off the lot, the value of vehicle is more than what I paid for it. I haven't bought many cars so I am hopeful someone here may have some advice.

Should I consider gap insurance or is it a waste in this situation?

Yes yes yes

 

[pa-outdoorsman]

DO NOT BUY GAP INSURANCE THROUGH THE DEALER! It's waaay overpriced.

Simply call your insurance agent and get a quote for GAP coverage as part of your regular six-month premium. I've had it on a couple financed vehicles in the past and it's literally a few dollars a month. If you aren't putting a lot down it's well worth it IMO, particularly for the first couple years of the loan.

 

[Rob Daman]

I have Farmers formerly MetLife insurance and GAP is $17 for a 6 month premium for me so I bought it. I wouldn't pay it through any dealership.

 

[TooManyVehicles]

I don't quite understand your point here.

I insure for lots of risks that would not leave me destitute. For example, if my house burned down, I am financially able to build or buy another one. But that doesn't mean I'm not going to insure my house. I prefer to spread that risk over a larger pool of homeowners.

In other words, just because you can self-insure doesn't mean that it's a wise choice.

That said, I'm not in favor of intentionally getting into an "under water" situation -- which is what gap insurance is designed for. But I recognize that some people, at certain times in their lives, may need or want to do that.

Perhaps destitute wasn't the best choice of words.

My point was/is that people buy things that they shouldn't be buying, and then spend even more money (making the item more expensive) because they can't afford some risk factor associated with it.

Let me try an extreme example: If your net worth was $100 million, would you insure your vehicle (with other than liability coverage)? I wouldn't, except for the issue that w/$100 million net worth, I would want to have a super-duty (pun intended) umbrella policy which may require other coverages.

I financed my Bronco Sport Badlands purchase. The only money down was the amount I was able to put on the credit card, otherwise everything (including taxes) was financed at 0%/36 months. No gap insurance, because I am willing to take the risk given my knowledge that gap insurance is very profitable for the underwriter.

We live in a society where a lot of the purchasers only care about one thing...their monthly payment. Sellers know that and use that knowledge to maximize their profits - through longer loans (frequently under water), leasing, and so on.

 

[NewBernWolf]

The alleged build date for my Hybrid Lariat Lux package is 2/7. As I plan ahead, I am curious to the purpose of gap insurance and how it works. I believe gap insurance is there in case something tragic happens to a relatively new vehicle and we end up owing more than what we paid. However, we are in a strange world where when I drive the new Maverick off the lot, the value of vehicle is more than what I paid for it. I haven't bought many cars so I am hopeful someone here may have some advice.

Should I consider gap insurance or is it a waste in this situation?

If you honestly think there's a reasonable chance someone else will total your truck at the time that your truck is worth less than what you owe on it, AND you won't be able to pay off that extra amount yourself, then get gap insurance. Or save the gap insurance premium in some separate investment or savings account and gamble that someone won't run a stoplight and total your truck at that exact moment that you owe more than the truck's value.

I personally would never buy gap insurance or an extended warranty, but obviously plenty of people do. Otherwise car companies wouldn't push them so hard.

 

[pa-outdoorsman]

I have Farmers formerly MetLife insurance and GAP is $17 for a 6 month premium for me so I bought it. I wouldn't pay it through any dealership.

For $35 a year it seems like a no-brainer to me.

 

[DryHeat]

Perhaps destitute wasn't the best choice of words.
* * *
Let me try an extreme example: If your net worth was $100 million, would you insure your vehicle (with other than liability coverage)? I wouldn't, except for the issue that w/$100 million net worth, I would want to have a super-duty (pun intended) umbrella policy which may require other coverages.

I agree that your point makes more sense when you leave out the "destitute" part.

I don't want to get into an extended back and forth on this because I think we basically agree. But I'll answer your question. No, I probably wouldn't insure my vehicle. But yes, I probably would still insure my house. The difference is the size of the potential loss.

Sure, with that net worth replacing the house would not hurt me. But the cost of the insurance would be almost negligible. It's just a way of spreading and managing the risk.

If you think about it, that's probably the same reason you would buy an umbrella policy. The odds of having a claim that took a significant fraction of those assets are very small. But you apparently want to spread the risk -- even the remote risk -- of having a significant loss.

But I've got to go. With the stock market acting the way it is, my net worth dropped below $100 million so I need to go sell some peanuts.

 

[TooManyVehicles]

I agree that your point makes more sense when you leave out the "destitute" part.

I don't want to get into an extended back and forth on this because I think we basically agree. But I'll answer your question. No, I probably wouldn't insure my vehicle. But yes, I probably would still insure my house. The difference is the size of the potential loss.

Sure, with that net worth replacing the house would not hurt me. But the cost of the insurance would be almost negligible. It's just a way of spreading and managing the risk.

If you think about it, that's probably the same reason you would buy an umbrella policy. The odds of having a claim that took a significant fraction of those assets are very small. But you apparently want to spread the risk -- even the remote risk -- of having a significant loss.

But I've got to go. With the stock market acting the way it is, my net worth dropped below $100 million so I need to go sell some peanuts.

I always appreciate your well thought out posts in numerous threads! (Even when I don't completely agree.)

 

[lanetang]

Thanks for everyone's insights. It seems everyone agrees that buying gap insurance through the dealership is not a good idea. I have a streak of paranoia in me and I insure everything because I hate bad financial surprises.

I will talk to Farm Bureau and see how much Gap insurance costs with them. I trust my agents more than a random dealership.

 

[Ricketts]

Unless putting a nice down payment, absolutely buy gap.

 

[Profiteer]

Okay. Since the Mavericks street value is going to be more than the MSRP, then I wouldn’t need gap insurance?

My hybrid Lariat Lux is going to cost me around $32k. I’m putting 4k down and so I will finance 28k. I’m not sure who determines the street value, but I’m pretty sure I could sell the truck for much more than $30k. I guess it comes down to who determines the street value.

Yes you need it. It is to pay off your loan. “Street value” doesn’t matter. If you total your truck, your insurance will pay the book value for it. You'll be responsible for the difference. It’s not like you were selling it to a private individual. Unless you just loaded with cash, get gap.

 

[Mc_Flier]

The alleged build date for my Hybrid Lariat Lux package is 2/7. As I plan ahead, I am curious to the purpose of gap insurance and how it works. I believe gap insurance is there in case something tragic happens to a relatively new vehicle and we end up owing more than what we paid. However, we are in a strange world where when I drive the new Maverick off the lot, the value of vehicle is more than what I paid for it. I haven't bought many cars so I am hopeful someone here may have some advice.

Should I consider gap insurance or is it a waste in this situation?

Start making your payment today. Keep it in your savings. Use that for down payment. Truck should be worth more than you finance immediately.

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