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GAP Insurance: Is It Really Worth It?


If your car got stolen and was not recovered, or was given up for lost, your insurance policy will often only pay for the approximate value of your car, rather than the vehicle’s list price at this point. This also happens even if an incident happened soon after a car was bought and driven off a dealership. This is because new cars depreciate a large amount of their value, sometimes losing up to 25% of its price, right after they are taken from a dealer’s garage.

Because of depreciation, your auto insurance will only pay for your car’s estimated market price, and if it is lesser than how much you still owe on your car loan; you will be spending a fortune in both trying to replace the vehicle and paying off the remainder of your car loan. How can you avoid this unfortunate situation?

The sole answer to this is to apply for GAP (Guaranteed Asset Protection) insurance. GAP insurance covers the negative equity between what your insurance provider pays you and the amount you still owe on your car. This means, it is as if nothing happened, financially speaking, even if you get involved in an accident. Payment from your insurance company plus GAP insurance assistance will help you repair or replace your car. Seems like a great money investment right? However, it is recommended not to get GAP from the car dealer where you purchased the vehicle because they will surely hit you hard on the pocket to avail of this service. The internet offers hundreds of independent agencies offering cheaper GAP insurance, just be careful in choosing where to apply.

A prominent question regarding this type of insurance is “Is it worth it?” Indeed, this suggests a difficult argument; however, one can say that it really depends on the chances that it will indeed be useful. According to studies by online insurers, one third to half of stolen cars all over the country are not recovered. If you check out government records, it is older vehicles, ages 11-15 years, which have higher risks of theft.

Based on statistics given above, it appears that new cars have lower chances of theft compared to older cars. Now, getting GAP insurance is purely optional for you, since the law does not require it. However, it can be stated that it is highly recommended to those who are still paying off their car loan. For those who are not or are already fully paid then you have the choice to risk your financial stability or spend a few dollars to keep those worries away.