Understanding Gap Insurance in Canada: Key Facts and Considerations
November 01, 2024
Understanding Gap Insurance in Canada: Key Facts and Considerations
Key Highlights
- → Gap insurance helps cover the difference between a car’s depreciated value and the amount you owe if the car is stolen or totaled.
- → It’s particularly useful for newer leased or financed vehicles, especially with longer loan terms.
- → Costs depend on factors like the car’s value, loan term, deductible, and the provider.
- → Available from dealerships, finance companies, or directly from insurance providers.
- → Review terms and costs carefully to see if gap insurance fits your needs.
Introduction
For Canadian drivers who lease or finance their vehicles, gap insurance is worth considering. This type of insurance covers the difference between your car’s actual cash value and the outstanding loan or lease balance if the vehicle is stolen or deemed a total loss. Understanding gap insurance in Canada can help you make informed choices to protect your vehicle investment. Learn more about car loans and financing options in Canada on FatCatLoans Canada.
What is Gap Insurance in Canada?
Also known as Guaranteed Auto Protection, gap insurance is optional coverage designed to protect you financially if your car is totaled or stolen, and you owe more than the car’s depreciated value. This insurance saves you from having to pay out-of-pocket to cover the difference between the payout from your primary insurance (the car’s market value) and the remaining balance on your loan or lease.
Why Gap Insurance Matters
When you finance or lease a vehicle, its market value starts to drop—sometimes significantly—within the first year. Standard auto insurance generally only covers this depreciated value, potentially leaving a gap if the car’s value is lower than your loan balance. Gap insurance covers this difference, helping to pay the loan amount beyond what your primary insurer would cover for the car’s current value. Check out our article on the best car loan options in Canada for more insights on managing financed vehicles.
Key Differences: Gap Insurance vs. Standard Auto Insurance
Standard auto insurance covers damage or loss due to accidents, theft, vandalism, and other risks, typically including liability, collision, and comprehensive options. However, it only pays out the car’s market value at the time of the loss, factoring in depreciation. In contrast, gap insurance steps in to cover the difference between this value and the remaining balance on a loan or lease—making it especially valuable for newer, financed, or leased vehicles.
Do You Need Gap Insurance in Canada?
Gap insurance isn’t necessary for everyone, but it’s highly recommended for:
- → Leased or Financed Vehicles: Financing or leasing often creates a gap between the car’s value and the loan balance, particularly in the first few years.
- → Cars That Depreciate Quickly: Some car models lose value faster, potentially increasing the gap if they’re totaled.
- → Low Down Payments or Long Loan Terms: If you made a small down payment or opted for a long loan term, gap insurance can help provide peace of mind by reducing potential debt if the car is badly damaged or lost.
How to Purchase Gap Insurance in Canada
In Canada, you can purchase gap insurance from:
- → Car Dealerships: Often offered as an add-on when you buy or lease a vehicle. Although convenient, this option can sometimes be more expensive.
- → Insurance Companies: Gap insurance can also be added to a standard auto insurance policy, which is often more affordable and easier to manage. Companies like Desjardins and TD Insurance offer gap insurance as part of their auto insurance options.
Tip: Compare the prices and coverage options from both dealerships and insurance companies. Dealership plans may have different terms or exclusions than those offered by insurance providers.
What Does Gap Insurance Cover?
Gap insurance covers the difference between your car’s market value (as determined by your primary insurance) and the remaining loan or lease balance if the vehicle is stolen or totaled. However, it generally does not cover:
- → Deductibles from your primary insurance
- → Late fees or fines on your auto loan or lease
- → Regular repairs or maintenance costs
It’s wise to review the terms of any gap insurance policy carefully to ensure it meets your needs.
Cost of Gap Insurance in Canada
The cost of gap insurance varies depending on factors like:
- → The car’s make and model
- → Loan or lease length and terms
- → The specific provider and policy you choose
Generally, gap insurance is a reasonably priced addition to a standard auto policy, costing a small percentage of your annual premium or a one-time fee at the dealership. On average, prices range from $20 to $40 per year if added to an insurance policy or $500 to $700 as a one-time fee at the dealership.
Filing a Claim with Gap Insurance
If your car is stolen or deemed a total loss, filing a claim with your gap insurance provider typically involves:
- Notifying Both Insurers: Inform both your primary auto insurance and gap insurance providers.
- Submitting Documentation: You’ll generally need a copy of your primary insurance policy, your vehicle’s financing or lease agreement, vehicle registration, and any relevant police reports.
Having these documents ready and keeping in contact with your gap insurance provider can help speed up the claims process.
Frequently Asked Questions
Is gap insurance mandatory in Canada?
No, gap insurance is optional in Canada, but it’s highly recommended for those with leased or financed vehicles to help protect against potential financial loss.
Can I transfer my gap insurance if I sell my vehicle?
Generally, gap insurance is non-transferable because it’s tied to a specific loan or lease agreement. However, some policies may offer a refund on any unused portion if the car is sold early, depending on the provider.
Does gap insurance cover deductible costs?
No, gap insurance typically does not cover deductibles. It primarily covers the difference between the insurance payout and the loan or lease balance.
How long does gap insurance last?
Gap insurance usually lasts for the term of your car loan or lease. Once the loan is paid off, gap insurance is no longer necessary.
Conclusion
Gap insurance in Canada is a valuable financial safeguard for drivers with leased or financed vehicles. By covering the gap between a car’s depreciated value and the remaining loan balance, gap insurance helps ensure that drivers aren’t left with debt if their vehicle is stolen or totaled. Carefully consider the cost, coverage options, and provider terms to make the best decision for your financial peace of mind.
