When purchasing your vehicle you are undoubtedly confronted to the choice of insurance - and you may have come across the term GAP insurance without really knowing what it means. Here I will teach you the basics of GAP insurance and help you figure out if it's suitable for you.
What is GAP insurance?
GAP insurance, aka Guaranteed Auto Protection provides coverage for the difference between the amount your car is worth and what you still owe on the financing (or lease) of your vehicle.
Who needs GAP insurance?
This car insurance coverage is not required for all vehicle owners, but is it necessary for you? Most drivers only need a standard auto insurance policy that will cover damage, theft, and repairs, and can opt for further coverage if desired. Nevertheless, there are a group of drivers that will need more than a standard auto insurance can offer: those that are "upside down" on the car. This means that you owe more on your vehicle than your vehicle is worth.
For example, if you purchased a vehicle that depreciates very fast, made a low down-payment, have a high interest rate, or pushed other costs into your car payments then you are the right candidate to consider GAP insurance.
Let's look at this with real numbers to see how it would work. Imagine that you bought a new vehicle for $25,000 and made a down-payment of $1,000, you pay $400 per month. Your car is written off 4 months later as a result of an accident or theft. During this time your vehicle's value has depreciated to $19,000 and your collision insurance provider informs you that you will only be reimbursed that amount. So far, you've paid a total of $2,600; you still owe $22,400 on your vehicle, and you will be reimbursed with $19,000 - the difference is $3,400. If you do not have GAP insurance you would have to pay $3,400 out of your pocket for a car that you don't even have! However, if you did have GAP insurance, it would cover that difference and you would not have to pay anything.
Where can you purchase GAP insurance?
GAP insurance is available in most states and can be purchased through the lender that is financing your purchase, through online vendors and through insurance companies.
When purchasing GAP coverage from your auto insurance company, you will generally pay a small additional fee charged with your regular premium. This means that every time you pay for your insurance, you will be paying for GAP coverage unless you cancel it. Since there will come a time when the ‘gap' will be closed and you will no longer really need that kind of protection, make sure to check every once in a while so that you don't pay more than you should.
Shop around in order to save money!
Not all GAP protection is the same, and as with other insurance policies, the rates may significantly change or the coverage may vary between providers, so make sure to compare different companies to find the best insurance rates.
Note: Check the fine print of your GAP insurance policy to make sure that it covers not only accidents, but all other types of loss.
Of course, shopping around for the best insurance rates can be tough, especially when there are hundreds of insurers in the US with many different offers and rates. Even though it helps you save money, it can also take a lot of time. We've thought of that, so we've done the work for you so that you can save both time and money on your auto insurance!