The moment you drive your new car off the lot, it starts to depreciate. But what happens if your car is totaled or stolen before you’ve paid off your auto loan? You could end up owing more on your loan than what your car is worth. That’s where Guaranteed Asset Protection, or GAP insurance, comes in.
Understanding GAP Insurance
GAP insurance is an optional coverage that can be added to your auto insurance policy. It covers the difference—or the “gap”—between the actual cash value of your vehicle and the remaining balance on your auto loan or lease. This type of insurance is particularly useful for new cars, which can depreciate quickly in the first few years of ownership.
The Importance of GAP Insurance
Imagine you bought a new car for $30,000 and financed the entire amount. After a year, you’ve paid off $6,000, but your car has depreciated to $22,000. If your car is totaled in an accident, your insurer would typically pay you the actual cash value of the car—$22,000. However, you still owe $24,000 on your auto loan. Without GAP insurance, you would be responsible for paying the $2,000 difference out of pocket.
How to Purchase GAP Insurance
You don’t have to purchase GAP insurance at the dealership. In fact, you can add it to your auto insurance policy at any time. Here’s how:
Contact Your Current Auto Insurer
Start by checking with your current auto insurer. Many insurance companies offer GAP coverage as an add-on to your existing policy.
Shop Around
If your current insurer doesn’t offer GAP coverage, or if you’re not satisfied with their offer, shop around. Many insurance companies specialize in GAP insurance and may offer more competitive rates.
Consider the Cost
The cost of GAP insurance can vary based on several factors, including the value of your car and the length of your loan term. Be sure to compare quotes from different providers before making a decision.
Conclusion
GAP insurance provides financial protection in the event your car is totaled or stolen before you’ve paid off your auto loan. By purchasing GAP insurance, you can avoid the financial stress of paying off a loan for a car you no longer have.
FAQs
Q: What is GAP insurance? A: GAP insurance is an optional coverage that pays the difference between the actual cash value of your vehicle and the remaining balance on your auto loan or lease if your car is totaled or stolen.
Q: When should I consider getting GAP insurance? A: You should consider getting GAP insurance when you purchase a new car, especially if you financed the entire purchase price or have a long-term loan. Cars depreciate quickly in the first few years, so you could end up owing more on your loan than what your car is worth.
Q: Where can I get GAP insurance? A: You can purchase GAP insurance from most auto insurance companies. You can also check with your bank or credit union, as they may offer GAP insurance when you finance your car.
