Mazda Gap Insurance: Everything You Need To Know
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Most people don’t realize that there could be gaps in their auto insurance coverage. Although standard collision coverage is enough for most people, it may fall short when your vehicle gets wrecked or stolen. In the event of a total loss, your standard coverage may not be enough when you owe more than your car’s actual value.
In this case, the Mazda gap insurance can help protect your finances.
Today, we talk about the things you should know about gap insurance. Is Mazda gap insurance something you actually need? What exactly is it? Who needs this type of coverage? Keep reading to learn more.
What is the Mazda Gap Insurance?
Gap insurance is an optional policy that covers the difference between your auto loan balance and your insurance payout.
Although standard auto insurance covers any physical damage to your vehicle, it may not be enough when your car gets totaled, stolen, or declared a total loss. With a total loss claim, insurance will only cover the current depreciated value of the vehicle, which may be insufficient to pay off your loan balance.
As soon as you drive your new car off the parking lot, its value starts depreciating. New cars depreciate faster than old cars, and they can lose 20% of their value after the first year of ownership.
If you lose your car to an accident or theft during the first year, you may owe more than your car’s current cash value (aka upside-down or underwater). As a result, you may have to shoulder the difference or gap between the payout and the remaining loan balance.
This is where Mazda gap insurance comes in handy.
Gap insurance will waive the difference, so there are no out-of-pocket costs for you. Some gap packages may include deductible coverage and dealer credits to sweeten the deal.
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How to Calculate Gap Insurance?
Let’s say you took out a $35,000 loan for a Mazda CX-9 and placed a 10% down payment, leaving you with a $31,500 loan balance. Then, let’s assume you got lucky on a 5-year loan with 0% APR, so you have $525 in monthly payments. After a year’s worth of monthly payments, your balance is $25,200.Unfortunately, you wrecked your SUV, and insurance declared it a total loss. Let’s assume the SUV’s value depreciated by 20%, making its market value $28,000. This means you’ll get a check equal to the current actual cash value of the CX-9.
In this scenario, your car’s current value exceeds the loan balance. You can pay off the rest of the loan and still have $2,800 left that can go to a replacement vehicle.
What happens if you place a lower down payment or have a car that depreciates quickly?
Let’s say your vehicle went through 30% depreciation at the time of your claim. You’ll now have a car valued at $24,500 which won’t be enough to cover the loan balance ($25,200). Without gap insurance, the $700 difference comes out of your pocket.
(Values are for illustrative purposes only. Individual experiences may vary)
Do I Need Mazda Gap Insurance?
In short: no.
Unless you’re leasing, gap insurance isn’t required. However, you need to have comprehensive and collision coverage if you opt for gap insurance. In Mazda’s case, gap insurance is only available during financing, but most auto insurance companies offer this coverage if you change your mind in the future.
Mazda’s Gap Insurance is one of the most barebones policies we’ve encountered. On top of total loss protection, the company also provides deductible coverage up to $1,000 (not available in all states).
Gap insurance isn’t for everyone, but the added protection it offers can be a lifesaver, especially after the devastation of losing your car.
When Should I Get Gap Insurance?
Gap insurance offers plenty of benefits, but whether you should get it or not depends on your situation. Consider gap coverage if these situations apply to you:
- Down payment of less than 20% - The lesser your down payment, the more likely you’ll go upside down on your loan within the first year. Modern vehicles tend to lose 20-30% of their value after the first year.
- A vehicle that depreciates quickly - Unless you have a vintage car, your vehicle will depreciate more rapidly than you would like. Check for websites like Kelley Blue Book to determine a vehicle’s historical value.
- Loan term longer than 60 months - Simply put, the longer the term, the longer you build equity for your car. Extended loan periods also prolong the window where you’re “underwater” on your loan.
- Leased vehicle - By default, most lease agreements will include gap insurance and are mandatory.
- High mileage driver - The average American drives 13,500 miles per year. Getting gap insurance is a smart move if you’re a high-mileage driver.
If one or two situations apply to you, we highly recommend signing up for gap coverage. Most insurers will let you cancel anytime and even offer full refunds up to a certain time.
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How Do I Get Gap Insurance?
Gap insurance is typically offered whenever you shop for comprehensive and collision coverage. Gap insurance is only available for Mazda customers as you purchase the vehicle. Some insurers have requirements for getting gap coverage (i.e., the car should be no older than two to three years old).
According to the Insurance Information Institute, gap insurance only adds about $20 to your annual premiums. Go for these types of deals if you’re serious about getting gap coverage.
Additionally, some dealerships offer gap protection for a one-time fee of around $400 to $700, making it the most expensive option. Even though the payment can be packaged with your loan, we don’t recommend doing this as you’ll end up paying more due to interest.
There’s also a chance you won’t be offered gap coverage as part of your overall insurance plan. In this case, you can purchase a standalone gap insurance policy with a one-time fee of $200 to $300.
Always ask your dealer or insurance provider if they offer this type of coverage. Weigh your options and choose the best fit for your needs.
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