What is gap insurance canada?

After saving for months or years for a vehicle, very few things are more heartbreaking than finding out that your car has been totalled or stolen. What's more, if you don't have the proper auto insurance, you may have to pay for a portion of the related expenses out of pocket (talk about adding salt to the wound).

But, what if we told you that there's a way that you can avoid paying for these expenses out of pocket? If you want peace of mind on and off the road, we suggest that you take a moment to learn about gap insurance Canada. Doing this could save you thousands of dollars if you happen to total your vehicle in the future.

Car gap insurance (also commonly referred to as guaranteed auto protection) is an auto insurance add-on that covers loan-related payments after a car is stolen or totalled.

In Canada, gap coverage is available through car dealerships, financing companies, and auto insurance providers.

Additionally, most companies only offer this type of coverage once, so you should know if you want gap insurance before committing to a purchase. If you decide to purchase this type of insurance, the dealership will add the cost to your loan, so you won't need to make any additional payments upfront.

You're likely wondering how gap protection insurance works. After doing some research, you'll come to realize that it's relatively simple.

As mentioned above, gap insurance covers loan-related costs after a vehicle is stolen or totalled in a collision. After this happens, you're required to file a claim with your car insurance provider. Your car insurance provider will cover the actual cash value of your vehicle, but if you haven't paid off your loan, you're responsible for covering the remainder. If you have gap insurance, the insurer will cover the rest of the loan, which means that you don't have to deal with any additional financial burden.

On the other hand, if you don't have gap insurance, you'll be required to cover the remainder of the loan out of pocket. This can range from hundreds to thousands of dollars (depending on the size of your loan).

Are you having trouble understanding? Here's an example:

You recently purchased a new vehicle for $40,000. You've stayed on top of your payments, but you still owe about $32,000. If your car gets stolen or destroyed in a collision (and you're not at fault), you can expect to receive the vehicle's actual cash value (for the sake of simplicity, let's say $30,000).

However, as we established earlier, you owe $32,000 — this means that you'd have to pay $2,000 after getting into an accident. Thankfully, if you have gap insurance, your insurer will cover the $2,000.

Although gap insurance is exceptionally beneficial for a wide range of drivers in Canada, there are a handful of things that you should be aware of before signing on the dotted line:

As you likely know, vehicles depreciate at an extremely high rate. If you finance or purchase a car with an exceptionally high depreciation rate (like a luxury model), you can potentially create a negative gap between your loan and vehicle value. If you owe more than your vehicle is worth, gap insurance is a wise choice.

The length of your loan plays a significant part in determining whether gap insurance is the right choice.

For instance, if you happen to have a long-term loan (for example, 60 months), your loan will be spread out for a lengthy period. This gives you fewer opportunities to chip away at the loan. If over time, the remainder of your loan exceeds the actual cash value of your vehicle, you'll be glad that you invested in gap coverage.

In contrast, if you have a short-term loan, you may find that gap insurance doesn't make financial sense in the long run.

Yes, there are a handful of details that insurers exclude from most gap insurance policies. Some examples include:

Your gap coverage policy doesn't include or cover the cost of additional modifications made afterwards. This includes changes like:

This is something to keep in mind if you're the type of driver who likes to customize your ride.

Your gap insurance doesn't cover warranties, unaddressed payments (unpaid, overdue, etc.) or similar fines.

Your gap coverage doesn't cover any lease-related payments that you've made.

Although this isn't an exclusion, we felt that it was necessary to mention that drivers need to have basic car coverage in order to be eligible for gap coverage.

If you're struggling to find affordable car insurance, it may be time to reach out to an insurance advisor online. An experienced insurance advisor can provide you with several quotes in a few minutes — either by phone or over the web. Before you know it, you'll have cheap, personalized auto insurance that you can rely on.

Generally, we wouldn't recommend purchasing gap insurance for a used vehicle. This is due to the fact that used vehicles don't depreciate as swiftly as new models. Because of this, it's unlikely that your loan will exceed the vehicle's actual cash value.

Imagine this: you buy a brand-new vehicle for $40,000 and take it home. You and your family use this vehicle daily for over four years, and then it gets in an accident. To your dismay, your vehicle is totalled. Luckily, you have auto insurance coverage that will reimburse you. Right?

Not exactly. Yes, your auto insurance carrier may write you a small cheque for the vehicle that was written-off, but only as much as it was worth (the depreciated value) at the time of the accident.

That’s where Optiom Prime comes in. Optiom Prime will reimburse you for what you paid, unlike your average auto insurance policy. Here’s how it works.

If you bought your vehicle new, Optiom Prime will reimburse your written-off vehicle for the difference between your primary insurance carrier’s market value payout and the amount the vehicle was worth when you purchased it for up to seven years after the fact. If you bought your vehicle used, Optiom Prime will reimburse you for up to five years after purchased. This includes any HST tacked on.

Is it worth the money to buy it? If you believe that you currently owe more money on a vehicle than your auto policy would pay out in the event of a claim, Optiom is worth the buy. Optiom is a little like guaranteed auto protection. It reimburses a vehicle owner if the auto insurance payout is less than the outstanding lease/loan amount. This is especially important for those people who have put no money down for their vehicle and opted for a long payoff period.

In a way, Optiom is similar to gap insurance.

Gap insurance in Canada is also sometimes referred to as guaranteed auto protection. It reimburses a vehicle owner if the auto insurance payout is less than the outstanding lease/loan amount. Gap insurance is especially important for those people who have put no money down for their vehicle and opted for a long payoff period.

What does gap insurance cover? How does gap insurance work? It might be easier explained with an example.

Imagine this scenario: you own a vehicle that has been completely wrecked and written off as a total loss. You are then owed the full value of that current vehicle. As is the case with any average vehicle, this car is now worth 20% less than what it was worth a year ago when you purchased it. If your collision insurance pays out $18,000 but you owe a total loan of $20,000, you’re in the hole for that remaining shortfall of $2,000.

If you had gap insurance, your gap payout would be that $2,000 shortfall. This means you won’t be left on the hook if your vehicle was written off in a wreck or collision.

Gap insurance is great, but it provides coverage only for the difference between the loan amount and actual cash value or “ACV” of your vehicle in the event of a loss. With Optiom, you purchase an insured limit that is similar to the purchase price of your vehicle. Even years later, you can still receive your purchase price back should you suffer a loss.

Put simply, take your $40,000 vehicle. This was the market value at the time it was purchased. Over time, that value changes – regardless of how much you paid initially. At the time of loss, your vehicle has about $18,000 of market value. Optiom Prime, however, will value your vehicle at the original purchase price of $40,000 and would offset the loss by paying you the $22,000 remaining.

Because cars lose value overtime. You and your family likely treasure your vehicle, and you’ve used it plenty over the years. It’s seen a lot of soccer practices, trips to and from work and school, roadtrips, and so on. Unfortunately, as all things do, your vehicle will age and wear and with newer models on the market, it just won’t be worth the same as it was when you bought it.

Due to this, many auto insurance policyholders find themselves “underwater.” When their vehicle is written off in an accident, they won’t receive a settlement in line with the vehicle’s current financed value. Instead, they will only get the current market value – which can end up costing the policy holder additional cash out of pocket in the event of a loss.

Optiom Prime coverage premiums are locked-in when you purchase a policy, and there is a guarantee for no re-qualifications (for your vehicle) or increases as long as you maintain your insurance. You will continue to be eligible for coverage for up to 7 years for newly purchased vehicles and up to 5 years for used ones.

Your primary auto insurance carrier will pay the market value of your car as part of the mandatory comprehensive and collision coverage you would need to carry. Optiom Prime is an additional policy, although not mandatory, it will pay the difference to ensure you get the amount you paid if your vehicle is written off in an accident.

If you currently have lease or loan obligations and your vehicle is a total loss, Optiom Prime will contribute to that too. Like other endorsements, Optiom Prime is an additional purchase that supplements your existing insurance. You may also add optional coverage (for an additional premium) for new and used vehicles.

Option Prime and gap insurance sound very similar on paper, but Optiom is far superior in terms of what it can cover. For example, gap insurance can provide coverage if your mini van has a loan that is greater than its value due to depreciation as a result of high mileage and interior damage done by your kids. Optiom Prime ensures you get your purchase price in the event of a loss, and not just the difference between the loan amount and ACV of your mini van.

It depends. If you owe more than what your vehicle is worth at any point, gap insurance is likely worth your money. This is especially true if you have put down anything less than 20% and having gap insurance for the first few years that you own your car is probably a good idea. In the event that your car is ruined, you will not have to pay out-of-pocket for the difference between your actual cash value and how much you owe to your lender.

Optiom goes above and beyond as it ensures the purchase price – not just the difference between the actual cash value of your mini van and your standing loan amount. While gap insurance can certainly help, Optiom helps you acquire a far more reasonable payout.

Typically, gap insurance comes relatively inexpensive and is purchased when you buy your new vehicle from the dealership. Your costs will vary according to the typical factors such as purchase price of the vehicle and expected usage of the vehicle.

Optiom Prime, on the other hand, may cost between $25 and $35 per month and covers the purchase price of your vehicle, not just the remaining difference between the depreciated value of your vehicle and your current loan.

Some dealers may offer the chance to purchase gap insurance when you buy or lease a new vehicle, but it might pay to assess whether the price is worth it next to what an insurance company may ask for traditionally. Moreover, an insurance broker will know your circumstances and your needs. In the end, it’s your decision, but don’t leap to buy if you have not already checked out all your options.

Optiom Prime is special, and Excalibur Insurance is one of very few insurance brokers in Ontario that offers this protection if your vehicle is written off in a collision or accident. You can request a quote with Excalibur and start protecting your family budget today.

If you need to pay out for a deductible on your primary auto insurance, Optiom Prime can reimburse you if there is a loss where your vehicle is repairable. Optiom Prime can pay up to $500 of your deductible if your vehicle can be repaired following an insured loss.

If you have rental vehicle coverage provided by your primary auto insurance provider which ends before your vehicle can be replaced or repaired, Optiom Prime can reimburse you for the continual rental vehicle costs until the repairs/replacement is complete.

Optiom Prime can reimburse you the cost to replace your vehicle’s key fob if you lost it. This includes up to $500 if vehicle’s keys are stolen or lost.

If you are involved in a no-fault accident, your Optiom Prime will pay a fixed amount if the necessary repairs exceed over 25% of the declared value of the vehicle (when the accident took place.) The vehicle’s value at the inception of your policy will determine the fixed payout amount (ex: if the vehicle value is between $5,000-$10,000, the guaranteed payout will be $1,000, and so on.)

Sometimes your basic auto insurance just isn’t enough. Ontario requires that drivers purchase a base minimum of liability per provincial requirements but that still leaves many vehicle owners underinsured when their cars and trucks suffer from depreciation over the years. If a no-fault accident was to take place where your vehicle was written-off, what would you do? Gap insurance is great, but Optiom Prime can protect your family’s prized investment when you need it most. Depreciation can decrease your vehicle’s value up to 20% in the first year and 15% per year following. That can be a huge financial impact without having the right coverage. Optiom can mend the gap and give you and your family the peace of mind you deserve.

You’re okay, but your vehicle isn’t. The accident has totalled your brand-new wheels.

A few days later you hear back from your car insurance company regarding your claim. They confirm that they will be reimbursing you for the full value of your vehicle — $28,000.

“What?” you ask. “It’s worth $35,000.”

It was. But then you drove it off the lot.

• At a certain point, the difference between what you owe and the car's value will drop to the point that it might not be worth having.
• It is an extra expense on top of monthly payments and regular upkeep.
• If you pay a low price to begin with, it might not be necessary.