GAP stands for Guaranteed Asset Protection. This kind of insurance covers the disparity between a loan balance and a car’s actual value If you have financed or leased a vehicle, it’s important to learn more about who needs auto gap insurance to see if you might benefit from this additional protection.
Who Should Consider Gap Insurance?
Before discussing gap insurance, it’s important to understand the problem that auto buyers may face when financing their car:
- These days, many people finance the entire purchase price of their vehicle. In addition, some loans might even include taxes, fees, and additional accessories. The minute you sign the contract, you may owe more than the car’s value.
- Meanwhile, taking possession and driving it off of the lot devalues an average vehicle by at least 10 percent. After a year has passed, the car has probably lost another 10 percent in value.
- After the end of that first year, the vehicle may have lost 20 percent in value, but it’s likely that a borrower hasn’t managed to pay off that much of the loan if they have a long loan term and put little down.
- Some cars depreciate much more that first year, and vehicles may continue to lose 15 to 20 percent of their value each year after the first one.
In fact, the loan balance may exceed the value of the car for a few years. If an insurance company totals the car because of severe damage, they will only compensate the owner for the value of the car and not the balance left on the loan. People who lease their cars can run into similar problems because their payoff amount is still much greater than the amount that the insurance company will agree to pay. If you think you need this coverage, know what to expect when getting a gap insurance quote and see that it is a simple process that can be very affordable.
How Gap Insurance Works
Gap insurance covers the difference between the amount that the auto insurance company will pay based on current value of the car and the amount still owed to the bank or finance company. It supplements comprehensive or collision coverage in case the vehicle has been stolen or totaled. Obviously, you still have to buy comprehensive and collision insurance, but you will need this coverage anyway if you still have a loan balance. In some cases, the gap coverage may also have a deductible that you will have to pay out of your pocket.
When to Consider Gap Insurance?
After an auto accident or theft, you certainly don’t want to learn that your car insurance company’s settlement offer won’t even pay your loan or lease off. If you put little or nothing down on your vehicle, drive a lot, or leased your car, you might consider buying this extra protection. You might also research how quickly the kind of vehicle that you bought tends to depreciate after a purchase. If you still owe a large balance on your loan or lease, gap insurance can offer you peace of mind.
Where to Buy Gap Insurance?
Auto dealers will usually offer you gap insurance; however, you don’t have to purchase this kind of coverage from them. In fact, they will probably ask you to pay upfront for the total cost and roll another charge into your loan. Instead, you can ask your insurance agent to help you shop for the best value. Some auto insurers offer this kind of protection as an extra payment on your regular car insurance premiums or as a stand-alone policy, and they may offer better prices. Get a no obligation quote today to find out how affordable this coverage can be for you.