What is Gap Insurance?
GAP is an acronym for Guaranteed Asset Protection which is an optional coverage that can be added to an existing car insurance policy. Gap insurance mostly applies to brand new cars or car models that are less than a year that have been totaled or stolen. Consider a situation where the balance owed on a car loan is greater than the book value of the car, in this sort of situation, Gap insurance protects car owners since the amount of compensation to be received from the loss would not fully cover the amount owed on the vehicle’s financing or lease agreement.
Check out: How to Save Money on Your Car Insurance
Even though Gap insurance is typically an optional coverage for car owners, sometimes the car loan or lease contract may require it. However, note that gap insurance does not cover accidents, damages, repairs, or a sale or trade-off, even when the financed amount is higher than the value of the vehicle. It will also not cover the cost of buying you another car.
How much is gap insurance?
These days, many car insurance companies offer Gap insurance coverage which you can add to your existing policy from the dealership or lender financing your car, you can also get it from most auto insurance providers. However, we recommend adding the Gap insurance coverage to your existing policy rather than getting it from a lender or dealership because it is typically a more expensive option.
Also see: What is Comprehensive Coverage Auto Insurance and why do you need it?
Also, just like most car insurance packages, there are some factors that would typically impact your gap insurance cost including your vehicle’s actual cash value (ACV), geographic location, age, and auto insurance claims history. We recommend making inquiries about the details of gap insurance coverage from your auto insurer and how much it would cost based on your situation to help you decide if it is the right option for you.
When do you need Gap Insurance and is gap insurance worth it?
- Gap insurance would be very valuable to you if you’ve financed your car and made little or no down payment.
- Gap insurance would suffice in a situation where you are trading in an upside-down car. In this type of situation, the dealership will typically add what you still owe to the loan balance of the new car unless you pay that difference up front which is potentially a bad idea that could come back to haunt you if your car is totaled or stolen.
- Another scenario where gap insurance becomes needed is when you buy a car with a bad resale value.
- Gap insurance would also be a good idea if you’d potentially have lots of mileage on the vehicle quickly. Truly, the faster you rack up the miles on your car, the faster its value depreciates and it’s likely that you’ll be dropping the value of the car quicker than your payments can keep pace.