Rick's Free Auto Repair Advice

GAP insurance — What is it?

What is GAP insurance?

Guaranteed Asset Protection (GAP) insurance coverage renders is a special insurance that covers the difference between what you owe on the vehicle versus what you vehicle is worth after a accident that results in a total loss.

Example of GAP insurance

You buy a new $27,000 vehicle, put down a $2,000 down-payment and take out a car loan for the balance. You drive it for 2-year, putting on about 35,000 miles. You get into a major accident and the insurance adjusters call it a total loss and pay you what the vehicle is worth.

Since most vehicles depreciate the fastest in the first two years after purchase and since you have a bit more than normal mileage, your vehicle is worth far less than you still owe on it.

If you don’t have GAP insurance, you will get the money from the insurance company for the value of the vehicle, but you’ll still have to pay off the balance of the car loan. Even if you apply the full payout from the accident towards the loan balance, you’ll still be short. So you won’t have a vehicle and you’ll still be making car payments on the excess balance.

Who should buy GAP insurance?

If you’re putting down a small down-payment and taking out a car loan for the balance, you should purchase GAP insurance.

Where to buy GAP insurance?

The dealer will try hard to sell you GAP insurance. But you don’t have to buy it from them. Contact your car insurance company and ask if they offer GAP insurance. Get a quote and compare the quote with other GAP insurance providers. In most cases, you’ll pay less for GAP insurance if you don’t buy it from the dealer.

©, 2022 Rick Muscoplat

Posted on by Rick Muscoplat

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