Honda Gap Insurance: Everything You Need To Know
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For most people, a car is among the most expensive purchases they’ll ever make. So, protecting this expenditure with insurance is common sense. Conventional auto insurance offers coverage against liability, collision, and other claims. But, it may not shield car owners when a vehicle is stolen, totaled in an accident, or is declared a total loss (like after being in a fire or flood). And this is where guaranteed auto protection or guaranteed asset protection (GAP) insurance comes in. And in particular, if you’re shopping for an Accord, CR-V, or another Honda, you’ll want to know about Honda GAP insurance.
What Is GAP Insurance?
Before getting into the specifics of Honda coverage, let’s look at a broader definition of GAP insurance. As we mentioned, a car can be made undrivable by a severe accident or after being exposed to fire or water. In these situations, the insurance company will declare the vehicle a total loss (where the “totaled” expression comes from).
When this happens, the insurer will write a check to the vehicle owner. If there’s no loan on the car (and it’s not being leased), then the payment goes to the owner. If there’s a loan or lease, the finance company gets the check.
Because most vehicles depreciate the minute they have driven away from the dealership, a car owner could face a situation where the loan or lease balance is greater than the value of a totaled car. GAP insurance is designed to prevent these situations. GAP insurance is optional but read what happens when a destroyed car is worth less than the loan.
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How Does Gap Insurance Work?
Let’s look at an example to further explain how GAP insurance comes into play. You’ve purchased a new car for $35,000 with a five-year loan at five percent and a $3,000 down payment. That starts you off with a $32,000 loan and monthly payments of $604.
A year into the loan, the car is totaled in an accident. At this point, you have a loan balance of about $26,222, and the insurance company determines the vehicle is worth $24,500 (30 percent depreciation during a new car’s first year is expected). This is called being upside down or having negative equity (the vehicle’s value is less than what you owe).
This creates a $1,722 shortfall that worsens if you add in the insurance deductible. Let’s say it’s $1,000. That means the loan company will get a check for $23,500. And you’re on the hook for $2,722 (the loan balance less what the insurance company pays). A GAP policy would pay this difference, not you.
When Is GAP Insurance a Smart Move?
Taking out a GAP insurance policy doesn’t make sense if you’re paying cash for a car. In the event of a total loss, there’s no loan balance to be responsible for. But, there are several scenarios where having this protection is a wise precaution.
- Low Downpayment: If your down payment is below 20 percent, then there’s a higher likelihood of being upside down if something happens during the first few years of a loan.
- Negative Equity: If you’ve rolled the negative equity from a previous car loan into a new loan.
- Extended Terms: Consider adding GAP coverage if your loan is financed for 72 months or longer (a six-year loan would have added another $1,100 in out-of-pocket expenses to the earlier example).
- High-Depreciation: Vehicles ripe for significant depreciation (like loaded luxury cars and some domestic brands) are good candidates for GAP insurance.
- Leasing: Vehicle leasing can sometimes involve an inflated valuation whereby the car is worth significantly more than it would be in normal circumstances. So, a GAP policy here could be the best money you’ve ever spent if the worst happens.
Why Is Gap Insurance Important?
Not only does GAP insurance pay off any loan or lease balance in the event of a total loss, but this coverage means that you won’t have to roll any negative equity into a new loan. And, any money that you’d otherwise have to pay could be used for a down payment towards a new car.
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What Is Honda GAP Insurance?
Honda GAP insurance is simply GAP coverage offered by an authorized Honda dealer at the transaction time. Specific policy terms may vary, but generally Honda GAP insurance:
- Is available for loan amounts up to 150% of the car’s MSRP (new) or a NADA-determined retail amount (used)
- Pays for an insurance deductible up to $1,000
- Pays for a loan/lease shortfall balance up to $50,000
- Provides protection against theft, fire, vandalism, accident, or act of nature (like a flood or hurricane)
Always review the terms of a GAP insurance policy before accepting coverage. In most instances, the policy can be canceled for a pro-rated refund if you sell the car or payoff the loan.
What Cars Are Eligible For Honda Gap Insurance?
Honda Gap coverage can be added during the purchase or lease of any new Honda, including:
- Honda Accord
- Honda Civic
- Honda Clarity
- Honda CR-V
- Honda HR-V
- Honda Insight
- Honda Odyssey
- Honda Passport
- Honda Pilot
- Honda Ridgeline
In addition, select pre-owned Hondas may be eligible for GAP insurance.
Are There Alternatives To Honda GAP Insurance?
Yes! Depending on where you live, some insurance companies offer comparable GAP coverage that can be added to an existing auto policy. Before signing anything at the dealer, call your insurance provider (and it never hurts to check with other carriers) to ask about GAP insurance.
How Much Does GAP Insurance Cost?
The cost for a GAP insurance policy will vary depending on several factors. For example, the type of car, its depreciation rate, length of the loan, and amount of financing all affect how much you’ll pay. At the dealer, Honda GAP insurance may run $400-$700 (an amount that could be added to the loan) for five years of coverage. A policy through an insurance company could cost $50-$75 per year.
One strategy is to get coverage through the dealer (assuming the policy is refundable) so you’re fully covered from day one. Then shop around for lower-priced offerings from insurance companies. Cancel the dealer’s policy after you’ve secured new coverage.
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