Affordable Guaranteed Auto Protection (GAP) Insurance Coverage (2024)

Did you know that if you take a loan out on a car, the car value can drop faster than you can pay the loan off?

Did you also know that you will be responsible for paying the difference to your bank if your car gets totaled? That could amount to thousands of dollars straight out of your pocket.

What is GAP insurance and do I need it when filing an auto insurance claim? Fortunately, there exists a lesser-known type of coverage known as GAP Insurance which can be included with your auto policy, lease, or loan. This specialized insurance can assist you in mitigating certain challenges arising from the depreciation of your vehicle’s value.

What is GAP insurance?

GAP insurance is a type of automotive insurance that can help you protect your vehicle if it is totaled and you owe more on the loan than it is worth. For example, if you owe $15,000 on your car and it is totaled, but the insurance company only pays out $10,000, vehicle GAP Insurance can help you cover the remaining $5,000.

GAP insurance is often available as an option on your car insurance policy. You can also add the coverage to your vehicle loan or lease at the time of purchase.

Here are a few key takeaways about GAP insurance:

• GAP insurance covers the difference between the amount you owe on your car and the actual cash value of your vehicle
• GAP coverage can be essential if your vehicle is totaled or stolen, as you may not be able to afford to pay off the remaining balance on your loan
• Car dealerships typically offer GAP insurance, which can be added to your loan agreement or purchased separately. You may also purchase coverage through an insurance carrier
• If you decide to purchase GAP insurance, make sure you understand all of the coverage details to know what is and is not covered
• GAP insurance is not always necessary, but it can be a valuable protection for car owners who are at risk of owing more on their loan than their car is worth

Read more: How To Cancel Gap Insurance

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Who needs GAP insurance?

GAP insurance is essential for anyone who owes more on their car loan than the car is worth. If the vehicle is totaled, GAP insurance will help cover the difference between what you owe and the car’s value. The coverage can help you avoid having to come up with a large sum of money to pay off your car loan.

GAP insurance is available from most of the best auto insurance companies, and it is usually quite affordable. It is important to note that GAP insurance only covers the difference between your car’s value and the amount you owe on your loan. It will not cover any other expenses associated with a totaled vehicle.

So, in summary, GAP insurance might be right for you if you:

• Have a loan or lease on your car
• Owe more on your car than it’s worth
• Own a vehicle with a lot of third-party options financed in the loan or lease
• Drive a high-risk car that is more likely to be stolen or totaled

Do I need GAP insurance if I already carry comprehensive or full coverage?

The short answer is: probably.

Some full coverage car insurance policies don’t offer GAP coverage, and others don’t automatically add it. Finally, some carriers add it automatically to all new cars. The best thing you can do for yourself is to check with your carrier to ensure you have the coverage and understand what it will do and how long it will last.

What GAP Insurance Covers

If your car is stolen or totaled, GAP insurance covers the money you owe a lender or leasing company if you still owe money on it. GAP insurance doesn’t pay for the entire vehicle, and it doesn’t usually pay the auto insurance deductible if there is one. It simply covers the difference between what you owe and your car’s actual cash value.

The other variable in GAP coverage is the amount of time the coverage is in force. Some policies cover the first 2 years of the vehicle’s life. Other policies exist for as long as the loan or lease is in place.

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How much does GAP insurance cost?

How much is GAP insurance? GAP insurance pricing varies widely. Insurance carriers usually offer some coverage for a nominal monthly fee. A stand-alone GAP insurance policy is generally priced more in the mid-range of $100-$500. A lender or lessor can provide similar GAP coverage for the life of the loan/lease, but that coverage is on the high end of the cost spectrum.

When should you buy GAP insurance?

• If you’re leasing or financing your car, the lender may require GAP insurance
• If you’re upside down on your car loan (you owe more on the car than it’s worth), GAP insurance can help you avoid having to pay the difference out of pocket
• If you have concerns, your vehicle will be lost or stolen
• If your driving activities put excessive wear and tear or mileage on the car, you may want the coverage for excessive vehicle depreciation due to use.

Where can you buy GAP insurance?

Banks, credit unions, and insurance companies usually offer GAP insurance coverage. Your bank and credit union will typically want to add it to a new loan. Your insurance company will want to add it to vehicles that qualify for the coverage on their policy.

You may want to shop around to understand where you want to purchase the coverage before buying a vehicle. You want to shop ahead of time because lending and leasing companies typically don’t allow you to add or remove the coverage after the sale is complete.

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What to do if you have a GAP insurance claim?

If you have a GAP insurance claim, your first conversation would be with your insurance carrier. After that, you would contact your lender. Each party will review your coverage and options they can offer so you can take the first step in replacing your vehicle.

There are a few things to keep in mind if you have a GAP insurance claim:

• Not all accidents will result in a total loss and may not be covered by GAP insurance
• If your car is a total loss, the settlement from the insurance company is the actual cash value of the vehicle, not what you still owe on loan. GAP insurance covers the difference between what you owe and the actual cash value of your vehicle.

GAP Insurance Preserves Your Investment and Your Credit

Vehicle GAP insurance can also help you protect your credit rating in the event of a total loss. Suppose you suddenly cannot make your loan payments because you totaled your vehicle and can’t cover the difference between what the car is worth and what you owe. In that case, vehicle GAP insurance can help you avoid having a default listed on your credit report and a subsequent lowering of your credit score.

GAP insurance ensures reimbursement for the original purchase price of the vehicle rather than the depreciated value. The coverage keeps your money in your pocket, which keeps your credit rating steady.

What You Need to Know About GAP Insurance Before Making a Purchase

First, GAP insurance only covers the difference between the value of your car and the amount of money you still owe on your loan. It does not cover the cost of repairs or the value of your vehicle if it is damaged.

Second, some GAP insurance has age limitations. Those policies generally cover the vehicle from new to between 2 and 5 years. If the policy doesn’t have age limitations, you can always cancel GAP insurance. Some lenders will add it directly to their loan for the life of the loan.

And finally, the cost of GAP coverage varies, as does the coverage itself. Shop around to familiarize yourself with local rates and coverage options.

Read More: Do I get my GAP insurance money back after I pay off my car?

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GAP Insurance is a Valuable Tool

It can help protect drivers if their car is totaled or stolen. GAP insurance can bridge the GAP between the Actual Cash Value and the Car Replacement Value. It is the bridge that protects you from the burden of a financial shortfall and the possibility of not being able to replace your car.

It can be worth it to take a few minutes to consider your options whenever you purchase or lease a car. Your banker or insurance carrier will be happy to help you with pricing and coverage options.

 

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