Is State Farm GAP Insurance Worth It?

Shopping for quality car insurance can give even the most laid-back consumer headaches. Liability, collision, comprehensive: what you need and when you need it stirs much of this confusion.

One insurance type with which you may be unfamiliar is Gap insurance. Find out below what exactly constitutes State Farm Gap insurance and if you could benefit from coverage.

What is Gap auto insurance?

With so many types of car insurance, why might you need another?

Consider this nightmare scenario. You buy a new car and expect your ride to last for years. Then, catastrophe happens, and you get into an accident. Your car’s unsalvageable and totaled. Yet you took out a hefty loan to purchase the car. Now, you’re stuck with years of payments for a vehicle that’s essentially worthless. What to do?

Gap auto insurance (otherwise known as guaranteed asset protection insurance) is designed as your go-to solution for this problematic scenario. While you may get funds back when your car is declared a total loss, that price tag will rarely match the amount you paid. As soon as you drive a vehicle off the lot, it begins to depreciate in value. After just a few months, your car could be worth thousands of dollars less.

Despite this depreciation, the amount of your loan remains the same, and your monthly payments on the loan will not make up the difference in value for some time. Gap insurance covers the disparity between your car’s current worth and the money you are paying through loans. This difference can quickly add up, particularly for pricier vehicles.

It is separate, or stands alone, from traditional insurance. Some providers refer to Gap auto insurance as loan/lease insurance.

Does State Farm offer Gap insurance?

The company does not offer traditional Gap stand alone insurance. State Farm does, however, offer a program with the same basic structure called Payoff Protection. Enrollment in this program is available for customers who do their car financing with State Farm Bank. Cars used as collateral for a State Farm loan are covered as well. The program will offer coverage for car accidents or theft.

Payoff Protection kicks in after your primary insurance company (State Farm or otherwise) or another driver’s company (a driver involved in an accident with you, for example) makes payments to you. Once State Farm has received your Claim Settlement Report, the Payoff Protection insurance covers the amount you still owe on the vehicle once the initial insurance payouts are made.

For example, if you received a $45,000 payout for your car but you took out a loan for $50,000, the Payoff Protection will pay $5,000. Remember, however, that you must have a loan in good standing to maintain eligibility. In addition, keep in mind that eligibility for this program may be impacted by your location. Contacting a local branch for specific rules and restrictions is your best option.

Benefits of Gap Insurance

In a cost-benefit analysis of whether you should buy Gap insurance, individual circumstances are important. Certain situations naturally lend themselves to this type of coverage. For one, GAP auto insurance is often required if you are leasing a vehicle where you will be giving it back to the owner after a certain period of time. Many financers also mandate Gap insurance.

Even if you are not required to buy Gap insurance, it can still work for you. This is especially true if the cost of your loan will rapidly outpace the worth of your vehicle, which is known as negative equity. If your make or model depreciates and loses value quickly, for example, Gap auto insurance can help you offset potential losses. The same rationale applies if you have a long-term loan (five-plus years) or of you only made a small down-payment of around 20% or less for your car.

Risk aversion will likely play a role in your decision as well. Insurance companies have long rated potential customers based on their risk of having an accident, Groups like teenagers or people living in urban areas historically have a bigger risk for car accidents, which is why these populations often have higher insurance rates. You may want to assess your own level of risk in the same way.

If you believe you are at higher risk for an accident, Gap insurance would offer extra security. Likewise, if you are naturally risk-averse, you may get invaluable peace of mind.

Potential Drawbacks of Gap Insurance

At times, the cost of Gap insurance may outweigh the benefits. This may be the case if the policy has limitations, such as not covering your insurance deductible or capping the total amount of payout you can receive. Before you consider any provider’s Gap coverage or Gap-adjacent coverage, you should thoroughly evaluate the details of the policy and read the fine print for exclusions.

Speaking of exclusions, you may be disqualified from coverage in some cases. For instance, providers may not offer Gap coverage for high-priced cars in the six-figure range. You’re also less likely to qualify if you have an older car.

Even when you qualify, the expenses associated with Gap auto insurance may be higher if you or your auto falls into one of the high-risk categories. A less-than-favorable credit score may impact the amount you pay as well. In some states, though, insurance companies are prohibited from asking for credit scores.

Benefits of State Farm Gap Insurance

You now know some of the reasons why Gap insurance might work for your situation. But can State Farm Gap insurance, or Payoff Protection, stand apart from competitor programs? In short, the answer is yes.

The company ranks as one of the top auto insurers in the United States, both in number of customers and rates of customer satisfaction. This solid reputation enables State Farm to offer cost-saving benefits for its client base such as bundling options wherein you can merge auto insurance payments with other types of insurance such as health insurance or homeowners insurance.

In addition, State Farm has plentiful funds at its disposal that should give you assurance your claims will ultimately be covered. The solidity of the company also provides it more leeway to cut you a break if you do not have an impeccable driving record. If you have been in an accident where you were at fault, your insurance rates are still lower on average than they would be with a competitor.

Is State Farm Gap insurance worth it? The Final Verdict

So, is State Farm Gap insurance worth it?

As discussed above, the answer to this question will not be the same for everyone. Your individual circumstances will help you arrive at the best answer. If you have a quickly depreciating new vehicle or a long-term loan on that vehicle, then Gap auto insurance could prove to be a very solid investment. Likewise, if you have a low risk-tolerance level, this added insurance can definitely save your sanity on the road.

On the other hand, if you are in possession of an older car or one that is mostly paid off at the outset, the costs of Gap stand alone insurance may outweigh the benefits. And if you have a high risk-tolerance level combined with low funds, you may want to take the gamble and forego it.

Of course, in certain situations the decision may be taken out of your hands. You either may not qualify, or your dealership or region may actually mandate that you buy Gap insurance for your auto. Ultimately, this type of insurance is more than worth it for the right drivers, as it can potentially save consumers thousands of dollars they would have otherwise lost.

One answer is more clear-cut: is State Farm Gap insurance worth it?

While the company may not technically call its Payoff Protection plan Gap insurance, the benefits are primarily the same. What does separate Payoff Protection from competitors is the company behind it.

State Farm holds the solid reputation, high customer satisfaction rates, and stability to ensure that when the worst does happen, you will most likely get a return on your investment. If you are in the market for Gap auto insurance, State Farm is definitely worth your time.

Understanding Gap insurance can be difficult. Armed with the above information, you can now proceed with a much clearer understanding.