Gap insurance with Ford Options?

[mikeho]

I got it as well. I understand the calculations on risk, but sometimes just having peace of mind is worth the $20/mo. If you're worried about that cost, skip getting a Starbucks once a week and it will have paid for itself.

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[DBC]

The federal tax credit and other incentives makes GAP more appealing. For example, say the MME cost $47,500 dollars, you put $4700 down, and you total the car right after you drive it off the lot. You owe $42,800 but the FMV of the MME, because of the tax credit and other state incentives, might be worth $36,000.

Without GAP insurance you are out $6,800 plus the $4700 down for a total of $11,500. You can offset this loss with the $7500 tax credit and $3500 in state incentives. So you are out just $500.

So why buy GAP? Do the same example with it. With GAP you are still out the $4700 down but can offset this with $7500 tax credit and $3500 in state incentives. You come out ahead by $6300.

If GAP might be worth $7000, the issue is how likely are you to total the MME and how much is the GAP policy.

Probably don't need GAP because with the $7500 tax credit you get you won't be under water on the car.

Only if you think guaranteed losses are better than possible gains. Check out the example above for why GAP makes more sense with credits and incentives.

I bought GAP. Would not say your decision was wrong. GAP is an insurance produce so you're likely to come out on the short end if you buy it.

 

[DBC]

So the prospect of your making a claim under the gap insurance during the first three years is about 7.5% of 15% or 1.125%. An 88 to 1 long shot.
...

Suppose your MME MSRP was 55,000. You put down 5,000 and borrowed 50,000. You received your $7,500 tax credit and applied it to the principal owed, so the balance is now 42,500. [You could game the system and keep the $7,500 in another pocket, leaving the loan balance at 50,000, setting up a scenario of potentially collecting $7500 a second time from the GAP insurer if you would ever make a claim.]

I like your analysis but putting the $7500 tax credit towards a down payment seems unlikely. If you do that then don't get GAP. Also you're neglecting the affects of the state and local rebates which can be substantial.

The difference between having GAP and not having it could be $10K.

Given this, it just depends on how much the GAP costs and how you look at risk.

 

[Woeo]

I did Options and ended up buying Gap insurance, at least so long as my loan balance is higher than FMV. I plan on aggressively paying it off by the end of my 48 month period (essentially having $0 left when the balloon payment is due). Gap insurance for me via Esurance is only about $4/month, so I figured why not.

Why go with Options at 2.25% and not the 4 year .9% if your plan is to have the balloon balance down to 0 by the end of the term? The extra interest will eat up any benefit of either the 1k or 2.5k incentive?

I used Options to leave open the possibility of a lease like vehicle return.

 

[Woeo]

I like your analysis but putting the $7500 tax credit towards a down payment seems unlikely. If you do that then don't get GAP. Also you're neglecting the affects of the state and local rebates which can be substantial.

The difference between having GAP and not having it could be $10K.

Given this, it just depends on how much the GAP costs and how you look at risk.

Whether you put the tax credit in your beach playtime pocket or in your apply it to the loan pocket you still received the money. Yes, if you apply it to the loan you guarantee a reduced GAP payout [and you save interest.]

Keeping it in the other pocket might allow you to collect through GAP the value of the credit (and state money) a second time.

However, I don't think you are giving enough regard for the folks writing these policies.

EV tax credits have been around for a long while now. If we can see a way to artificially increase a potential GAP payment, I suspect insurers have as well. Even Gap insurers can't stay in business if they allow borrowers to artificially increase the nominal loan amount.

I would expect insurers have figured out the fine print language that limits payments in these situations.

If you know they haven't, or you suspect you will slip by unnoticed, then go at it...should you roll the dice and win...you will be way ahead.

If the insurance company has seen this obvious play as we have, expect pushback.

Of course given the extreme unlikelihood of collecting in the first place and, if you keep the money in your beach pocket, the added expense of loan interest makes it all the more important that you purchase GAP insurance close to the true cost. Say, $4 a month as others have found?

 

[Woeo]

I got it as well. I understand the calculations on risk, but sometimes just having peace of mind is worth the $20/mo. If you're worried about that cost, skip getting a Starbucks once a week and it will have paid for itself.

I already skip Starbucks because I appreciate they, along with GAP insurance resellers, are in the business of marking products up 1,000 percent or more when they can.

$20 per month on an ongoing basis is an insane amount to pay. At that rate folks would pay $288,000 in premiums for every $4,500 paid out (or every $12k to DBC) assuming three years worth of protection.

If you can stomach that I know a place that serves cheap black coffee.

 

[MachE2021]

Why go with Options at 2.25% and not the 4 year .9% if your plan is to have the balloon balance down to 0 by the end of the term? The extra interest will eat up any benefit of either the 1k or 2.5k incentive?

I used Options to leave open the possibility of a lease like vehicle return.

I got the $2500 credit. I did the math and I’d pay about exactly the same doing this vs the 4 yr 0.9% financing. I chose Options because it provides flexibility in that if circumstances change and I want to reduce payments I can, as well as lower the required monthly debt payments I’m obligated to make, which may help when financing my new home next year. Also, I may just end up paying off the whole thing in the next year or two and then be ahead due to the $2500 credit.

 

[NoVAguy]

Consider your 'cost' if you self-insure.

If you are an average driver the prospect of you having an accident in any given year is about 5%.

So let us call it a cumulative 15% over the first three years off ownership, those years when you might likely owe more than the actual cash value of the car.

The prospect of a vehicle actually involved in an accident actually being declared a total loss [too expensive to repair] ranges from 5% in the first year rising to 10% in the third year. Lets call it 7.5%.

So the prospect of your making a claim under the gap insurance during the first three years is about 7.5% of 15% or 1.125%. An 88 to 1 long shot.

How much is at risk? What is the amount GAP is protecting your from?

Suppose your MME MSRP was 55,000. You put down 5,000 and borrowed 50,000. You received your $7,500 tax credit and applied it to the principal owed, so the balance is now 42,500. [You could game the system and keep the $7,500 in another pocket, leaving the loan balance at 50,000, setting up a scenario of potentially collecting $7500 a second time from the GAP insurer if you would ever make a claim.]

In either case Actual Cash Value will reflect the 7,500 tax credit and if we apply a typical 20% first year depreciation... the car is worth approx. 38,000 when you drive off the lot.

Your max risk would be about $4,500. Loan balance $42,500 minus ACV $38,000. [Even if you don't apply the tax credit to the loan balance, your max risk is still $4,500.]

The chances of a totaled accident during that first year? 5% of 5% or .25%

The true cost to insure that first year $4500 risk for the insurance company? ~$11.25. They could collect 400 premiums of $11.25 and pay out $4500 to the one accident that totaled the vehicle and break even.

In the second year the % of totaled vehicles rises, but the loan balance should be going down as well. Same thoughts for the third year. The at risk, GAP, amount will also be lowering with time as the loan balance should decrease faster than the car depreciates. In effect leaving us with a higher chance of a lower amount at risk as time marches on.

A three year gap policy true risk cost for the insurer is less than $35. [$90 if you don't pay down the loan with the tax credit.] Add in expenses and a fair profit would call for how large a premium?

Perhaps $100. [A bit more, if everyone wants to game the system and hope for a $12,000 pay out rather than $4,500.]

Anyone buying a MME should be capable of self-insuring a $4500 GAP risk....or they should reevaluate whether their purchase is financially sound.

Certainly they should not pay $1,000 or even $300 to avoid a .25% exposure to a $4,500 loss. [If you are now considering a financial scam make sure the vehicle is totaled.]

Greatly appreciate you taking the time to write out this analysis! I found it extremely helpful.

Would you possibly have any insight to the cost analysis of an extended warranty? I see a lot of people talking about it over at the Extended warranty. thread and wondering if it makes sense for this vehicle. I've never purchased one before as I always saw GAP and extended warranties as unnecessary, but being new to BEV has me curious.

 

[Woeo]

I got the $2500 credit. I did the math and I’d pay about exactly the same doing this vs the 4 yr 0.9% financing. I chose Options because it provides flexibility in that if circumstances change and I want to reduce payments I can, as well as lower the required monthly debt payments I’m obligated to make, which may help when financing my new home next year. Also, I may just end up paying off the whole thing in the next year or two and then be ahead due to the $2500 credit.

I understand. I appreciate having flexibility.

I went with 3yrs Options. 1k incentive here, but that brings the interest of Options near 3yrs straight .9%. Will probably pay it off early as well, but am going to wait to see if they can sort out the on going issues....otherwise the buy out may look more and more better.

 

[Woeo]

Greatly appreciate you taking the time to write out this analysis! I found it extremely helpful.

Would you possibly have any insight to the cost analysis of an extended warranty? I see a lot of people talking about it over at the Extended warranty. thread and wondering if it makes sense for this vehicle. I've never purchased one before as I always saw GAP and extended warranties as unnecessary, but being new to BEV has me curious.

Somewhat the same thought process....there is a value to the actual warranty. Take all the extended warranty expenses Ford out lays and divide it by the number of warranties sold to determine Ford's warranty cost per car.

With years of information Ford can make a good estimate of their warranty cost. Ford will charge it's dealers that amount plus a bit of profit for any warranty the dealer re-sells. If you can negotiate a price close to that true cost...the dealer cost...purchasing an extended warranty makes more sense because your price will not include exorbitant profit.

However Ford allows dealers to mark up the warranty when it is sold to the car buyer. Some dealers will mark it up 75, 100, 150% or more. The problem for the consumer is learning the actual price Ford charges the dealer. I don't know of any source as exists for finding vehicle invoice pricing

And in this situation we find ourselves with the MME, Ford itself is only guessing what warranty costs will be in the 4th, 5th, 6th, 7th, 8th years of this first generation. They may be charging dealers a premium over their predicted expenses to protect themselves, so even if you could negotiate a price close to the dealer's cost you might be over paying for protection against the risk that you are actually undertaking. Of course, Ford may be accurately pricing the risk or they could be underestimating the risk.

A lot we don't know.

What we do know is you will get many dealers asking $3,500 or more for a warranty for which they pay $1,500 to Ford.

Fortunately there are a couple of dealers who will sell Ford extended warranties on the internet. They are legitimate dealers. Any Ford dealer will honor the warranty. Flood Ford is one.

They profess to offer a good price close to their cost...is that true? I don't know. I know a lot of dealers won't meet Flood's pricing. Why? Is it not worth their time to process the paperwork? Would they rather lose a sale than admit they were about to charge hundreds of dollars more before being shown the Flood price?

If I were buying I would support Flood. Don't let the dealer match Flood's price, make them beat it. Particularly if they quoted a particularly high number to start the discussion.

Other factors to consider.

You can buy a Ford backed extended warranty from any Ford Dealer up until you have had the vehicle 3 years or driven 36k miles, so there is no rush. [I would never buy a third party extended warranty.]

EVs are not as mechanically complicated as ICE vehicles and even less so than Hybrids which carry both EV and ICE systems.

The MME battery is warrantied for 8yrs/100,000 miles. I believe the power train is 5 yrs/60 k miles.

A lot of the items listed in the warranty don't exist on the MME, however, the computers, software, programmable modules on the MME are more complex systems than on most any other vehicle Ford sells.

Check Flood's price....keep all this in your head for a day or two and decide what is best for you.

Good luck.

 

[MitchAK]

I was finally able to track down a cancelled order Grabber blue and chose Ford Options to finance the car. The dealership was pushing Gap insurance pretty hard. They kept mentioning that gap is included automatically when you lease the car. I ultimately declined it but not sure if I made the right decision. Any thoughts?

As long as you put down a substantial down payment I always decline GAP. If you’re putting down small downpayment with intentions on stretching a loan term for lower monthly payments, then GAP is a worthy investment.

 

[abr]

When I bought the MME last week, offer for GAP insurance from Ford was $800 (? I might be off a few $). Added it to my Traveler's policy for $45 per year.
I don't know if I really need it or not, but at $45 per year, not much of a risk.

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