GAP insurance, or Guaranteed Asset Protection insurance, is a type of coverage specifically designed for leased or financed vehicles. When you buy a new car and finance it, there's often a gap between what your car insurance will pay if the vehicle is totaled or stolen and the actual balance you owe on your loan or lease. This discrepancy arises because standard auto insurance policies typically cover the market value of the car at the time of the claim, which may have depreciated faster than the balance of your loan decreases.
Here's how GAP insurance works:
If your car is totaled or stolen, your regular car insurance policy will pay out the current market value of the vehicle. If the payout from your standard insurance doesn’t cover the total amount you owe on your vehicle's financing or lease, GAP insurance steps in to cover the difference. Without GAP insurance, you could end up owing thousands of dollars on a vehicle you no longer have.
GAP insurance is particularly relevant for:
Vehicles that depreciate rapidly.
High-mileage drivers who might depreciate their car’s value more quickly.
Leases, since leased vehicles often have stringent conditions about early termination.
Down payments that are small or non-existent, leading to financing a large proportion of the vehicle’s price.
GAP insurance can be purchased from car dealerships, financing companies, or insurance providers, typically at the time of purchase or leasing. It's important to consider the cost, terms, and whether it aligns with your financial needs and risks.
KJ The Auto Guy Highly Recommends GAP!