Car value depreciates over time because of usage and other reasons. Normally, a car will cost 30 percent less in three months after purchasing it. Surely, you would not want an insurance that will not pay you the same amount that you paid for your car.
Guaranteed Auto Protection (GAP) insurance is an extra insurance that protects your car loan in case it is totaled because of fire, theft, accident, flood, tornado, vandalism or hurricane. If this happens, GAP covers the difference of what you owe compared to what your car is worth and it also pays your regular insurance deductible. When you do not have GAP insurance, you will be left owing thousands of dollars.
Normally, car insurance companies only pay the actual cash value of your car which can be lesser than its actual retail value and the actual amount you still owe on your loan or the amount due for a lease or pay off. This is called financial shortfall or “gap”.
GAP is Loan/Lease Insurance that is optional and may include physical damage coverage. The purpose of GAP is to protect you from a huge financial loss in case your car is totaled. It is available in almost all states except in Los Angeles Connecticut, New York, Washington, and Virginia. Most major car insurance companies offer GAP.
GAP is recommended to people who are still paying for their car loans and for new, used and those who own refinanced cars, and trucks and SUV’s leased, refinanced or purchased within the past 12 months. It is also recommended to people who put less than a 20% down payment on their new vehicles or rolled their balance from their old car to the new loan on their car.
On the other hand, buyers who made healthy down payments need not purchase this insurance because they are not on the “upside down” on their car for any significant period of time. Most lease contracts require lessors to have GAP insurance because lease payments are significantly lower than the car’s actual value. If it is stolen or totaled, you need to pay how much the car is worth.
It is important to be knowledgeable about GAP to avoid confusion. You must ask your car insurance representative when planning to get GAP insurance because it is not an automatic addition to your regular car insurance. Try shopping online for more information.