GAP Insurance, or Guaranteed Asset Protection Insurance, is a coverage that a car owner takes out on his vehicle or car for securing the balance of payment still remaining for the purchase of a brand new vehicle. This is meant to secure an owner’s obligation of having to pay a dealer the outstanding balance, in the amount between actual money paid and amount still to be paid. In case of loss, damage, theft or destruction of a car or vehicle, an insurer will pay the dealer the amount of outstanding balance.
However, is getting GAP insurance worth the trouble? This coverage is different from your basic automobile insurance. While the latter is mandatory in most places, the former is usually optional for car or automobile owners. In fact, this type of auto insurance is not even known in a lot of countries. However, as in all cases of insurance, this will only cover the amount corresponding to the difference of value remaining to be paid and the amount of motor vehicle insurance coverage, if any. A basic rule remains wherein no owner can recover more than its actual value.
There is really no difference between loss, damage, injury or destruction of brand new cars compared to second-hand or older cars. They are tangible things and are capable of being destroyed. However, there is a significant disadvantage on the part of a buyer when it gets lost or stolen or destroyed even before it has been fully paid for. The fact that a vehicle is no longer in the buyer’s hands does not mean that he is excused from paying whatever obligation remains. He will have to continue paying because ownership over his vehicle was already transferred to him at the time he paid its initial amount.
GAP insurance protects the car owner from this risk. At times, a dealer offers coverage at the moment of sale for their mutual protection, since naturally, a buyer would be hesitant to pay a car’s remaining balance if he no longer has the car in his hands. There will be times when the insured will still have enough money to buy another car because after all, we are talking about a contract of indemnity. He may not recover its full value, but at least he gets something substantial.
The answer to the question if GAP insurance is worth paying more is on a case-to-case basis. It all depends on how car owners see its benefit and whether or not the risk is worth taking.