BMW Gap Insurance: Everything You Need To Know
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Most people are satisfied with comprehensive and collision coverage when it comes to insurance coverage. Instead, they would pass on additional coverage and policies since they’re not required by law. One coverage that most people don’t think about is gap insurance.
What exactly is the BMW gap insurance? Is it worth the added expense?
If you’re looking to find out more about BMW gap insurance, you’ve come to the right place. Today, let’s take a look at BMW’s gap coverage and determine if it’s worth adding on top of your standard auto insurance.
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BMW Gap Insurance: What Exactly is It?
Auto insurance protects yourself financially when you purchase a new vehicle. Even though insurance will compensate you for physical damages to your car, your standard coverage may not be enough if your car gets totaled or stolen.
When your car is declared a total loss by your provider, they’ll only write a check equal to the vehicle’s actual cash value (ACV) – basically, the car’s dollar amount upon filing your claim. When determining current market value, depreciation is taken into account. Most modern vehicles (including BMW) lose as much as 20-30% of their value during the first year.
The problem lies when your car’s ACV isn’t enough to pay off your remaining car loan balance. This is commonly known as being “upside-down” or “underwater” in your car loan. As a result, you’re responsible for the difference or gap; that’s hundreds to thousands of dollars out of your pocket.
Gap (Guaranteed Asset Protection) insurance is an optional and supplementary policy that covers the difference between your car’s current value and loan balance. The added protection ensures that the full cost of the loss is covered and there are no out-of-pocket costs for you.
BMW Gap Insurance: What Is and Isn’t Covered?
Most vehicle financing will go upside-down, especially during the early ownership phase. In the case of a total loss, BMW gap insurance waives the difference in coverage. Below is a quick breakdown of what is and isn’t covered by gap insurance.
Gap Insurance Covers:
- Accidents (car wrecked or totaled)
- Theft
- Fire damage
- Acts of God (hurricane, tornado, wildfire, flood, etc.)
- Vandalism
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Gap Insurance Doesn’t Cover:
- Total losses due to fraudulent, dishonest, and illegal acts (i.e., intentional damage, DUI)
- Any amount exceeding the gap coverage limits
- Any amount owed due to late fees, due date changes, and deferred or delinquent payments
- Mechanical repairs
- Rental fees incurred while your car is in the shop
- Negative equity rolled over into a new car loan
- Refinanced the original payment agreement
As you can see, gap insurance isn’t a super-policy that covers everything, but instead, it caters to a hyper-specific financial situation.
Gap Insurance: Running the Numbers
How does gap insurance work? Let’s follow the example below.
Let’s say you bought a BMW 5 Series sedan via a loan for $55,000. You made a 10% down payment, so your loan cost is $49,500. For simplicity’s sake, let’s assume you have a 5-year loan term and got a lucky (or rather unlikely) deal for 0% interest. Therefore, you need to pay $825 per month. A year has passed, you managed to decrease your loan balance to $39,600.
At this point, you got into a total wreck accident, and your car is declared a total loss. After a year, let’s say your BMW sedan lost 20% value to depreciation, so its cash value is now $44,000. There’s no problem here since the insurance payout ($44,000) exceeds your remaining balance ($39,600).
Conversely, what if the loan term is longer or your BMW lost more of its value due to depreciation?
With 30% depreciation, the sedan’s ACV will be $38,500 – not enough to cover the auto loan balance, and you have a deficit of $1,100. You will shoulder the shortfall of $1,100 unless you have gap insurance. In which case, you’re covered for the entire cost of the loss.
Who Should Get Gap Insurance?
Gap coverage is optional because it doesn’t apply to everyone. However, if you belong in one or more scenarios below, you should consider getting this extra coverage.
- When you paid less than 20% down payment - A lesser down payment makes you more likely to go underwater on your loan.
- When you purchase a model that depreciates quickly - The BMW 5 and 7 series have notoriously fast depreciation rates.
- When your loan term is longer than 60 months - A term of more than five years means you spend more time upside-down.
- When you drive more than average - The more miles you drive, the faster your car depreciates.
- When you lease a BMW - Gap insurance is usually packaged with lease contracts, either for free or extra fees.
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If you don’t find yourself in one of these situations, getting gap insurance would be a waste since you’re unlikely to go upside-down. You can cancel gap policies at any time, and some providers may even issue full refunds within a certain number of months.
BMW’s Guaranteed Auto Protection (GAP)
Every car manufacturer has its unique approach when it comes to gap insurance. Although they’re fundamentally the same, some policies include additional perks like deductible coverage and dealer credit.
Here are the benefits of BMW Guaranteed Auto Protection, as advertised:
- Coverage up to $50,000 of the “gap” due to total loss
- $1,000 coverage for the primary insurance deductible
- Coverage of up to 150% of the vehicle’s MSRP/NADA value
- Covers agreement terms up to 84 months
Is it worth it? Totally.
BMW and luxury cars, in general, rapidly decrease in value due to several factors, such as the increasing popularity of leasing and high ownership costs. Unless you’re sure you won’t go underwater with your BMW loan, we recommend signing up for gap insurance.
Another reason why it’s worth it is this type of coverage is relatively affordable, costing as low as $20 per year. However, some dealerships offer gap coverage, but they tend to be pricey with a one-time fee of $400 to $700.
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