A quick explanation of GAP insurance to find out if it’s right for you…
There are many types of auto insurance, including liability insurance, comprehensive coverage, uninsured motorist protection, and more.
One type of insurance that you may have heard about is GAP insurance. This insurance can be an important part of your insurance protection, but do you completely understand how it works? Let’s go over everything you need to know.
What is GAP Insurance?
GAP stands for Guaranteed Auto Protection or Guaranteed Asset Protection. Essentially, if your car, truck, or SUV is totaled in an accident, GAP insurance is the way you protect yourself from having to pay off the balance between the value of the vehicle and the remaining amount of your loan.
Here (in very simplified form) is how it works:
- Say you purchase a new vehicle by using an auto loan of $25,000.
- This loan covers the sales price of the vehicle, fees, taxes, registration, and other costs that might come with purchasing a new car.
- However, the actual value of the vehicle may only be $23,000, and it is depreciating the more you drive.
- After a couple months of driving the vehicle, the vehicle depreciated (approximately) by $1,000, bringing the total value to $22,000.
- You may have made only one payment of $500, which brings your total amount owed to $24,500.
- What happens if your vehicle is in an accident and the car is totaled?
- With most insurance, your policy will only cover the value of the vehicle, which is $22,000.
- What happens to the additional $2,500 you actually owe?
With GAP insurance, the $2,500 difference is covered, and you won’t be left with a large bill for a car that you can no longer drive, freeing up your finances to go out and purchase a new vehicle. (Hopefully one that doesn’t get totaled this time!)
Details to Remember
There are many details involved in GAP insurance that you will need to keep in mind.
- Before your GAP policy provides a payment, your auto insurance has to pay first. There may be a waiting period as your auto insurance company files the claim and processes your payment.
- Also, in order for GAP insurance to contribute, your vehicle must be declared a total loss. This means that dents, scratches, and even fender-benders may not be covered by your GAP policy.
There are many other details involved in GAP insurance, so make sure you are working with a qualified professional before making the final decision.
Should You Choose GAP Insurance?
GAP insurance may not be for everyone, but it can be a helpful policy to have if the amount of your loan is greater than the value of your car. What would happen if your car were totaled today? Would you be able to handle the difference yourself, or would the financial burden make a large impact on your budget?
When in doubt, seek the help of a qualified, experienced insurance professional at Avante Insurance who will give you a clear, honest assessment of your needs, including whether or not you should have GAP insurance.