What is GAP Insurance?
GAP stands for “Guaranteed Asset Protection“. It is insurance that helps protect someone who is making payments on a vehicle from having an unpaid finance balance in the event of total loss or theft of the vehicle.
Insurance companies typically pay the Actual Cash Value (ACV) for a vehicle in the event of total loss or theft. This is regardless of the remaining balance on your loan. If the amount you owe on your vehicle is higher than what the insurance company determines as the ACV, you can be left with an unpaid balance that you are responsible for.
How does GAP Insurance work?
Let’s say your vehicle has just been totaled because of an accident. You originally paid $26,000 and financed it for 72 months. The accident happened after 24 months of ownership. You owe $18,000 but your auto insurance says the actual cash value of your vehicle is only $10,000. The “GAP” between what you paid for your vehicle originally and what the insurance company will pay out is $8,000. If you didn’t have GAP coverage, your out of pocket expense would be $8,000. If you have GAP, the out of pocket expense is $0!
Benefits of GAP Insurance
Insurance is a hedge against the worst case scenario. If a vehicle is totaled, and you don’t have GAP Insurance, you could be on the hook to pay thousands of dollars for a vehicle that you no longer have. This form of insurance gives the driver peace of mind that they won’t get the mathematical short end of the stick if the unfortunate happens. GAP Insurance lasts for the entire term of the vehicle’s loan – it won’t lapse and leave you hanging.
GAP Insurance could be for you if:
- You financed with extended terms (more months)
- You have a small down payment
- You had negative equity in your last vehicle, that you rolled into your new vehicle loan
- You log more miles than the average driver
- You purchased a vehicle with a high depreciation rate
GAP Insurance saved me thousands of dollars! My vehicle was totaled in an accident that was not my fault. I was upside down in my vehicle because I owed more than what it was worth. But I didn’t have to worry about it because GAP insurance covered the negative equity as well as my insurance deductible. I will never buy another vehicle without GAP insurance on it.
– James Alexander
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Exclusions May Apply
The information above is to provide a summary of the coverages and benefits that GAP Insurance provides. Exact terms, conditions and exclusions can be found on the GAP Insurance Contract.