Gap insurance is also referred to as GAP protection and/or Totaled insurance. It stands for ‘Guaranteed Auto Protection‘. It covers the difference between what you owe on your car and how much the car is worth.
Most drivers feel that a common auto insurance policy provides enough coverage for the cost of repairs or replacement, if their vehicles are damaged or stolen. However, if you total your car and the car’s actual cash value is lower than the amount you owe on your loan balance or lease, that difference, or “gap,” is not covered by insurance. Your insurance company won’t pay out more than the car is worth (before it was damaged) so you will be responsible for paying that amount.
Gap insurance is one of those extra charges that seem like a squander of personal capital until you probably need it.
Let’s set a type of example why Gap Insurance would help you immensely. Let’s say your recent car cost around $38,000 , your insurer may possibly pay around $32,000 for a total loss during it’s initial year. That’s a $6,000 loss. Again, this is all betting on the certain amount of your down payment. You would still be responsible to your lender for the balance of the loan. Imagine after getting your car completely totaled or even stolen, you still are held responsible to pay off a car you don’t even drive anymore? It’s not something easily to take in.
Who should probably get Gap Insurance?
It’s safe to say anyone who has an auto loan or lease and hasn’t put much money down should consider getting GAP insurance.
Here’s a few fun facts on whom should get it:
- People who are financing for 60 months plus.
- Put a down payment of less than 20 percent.
- Negative equity from a past car loan into a new car loan.
- You plan to drive more than 15,000 miles yearly.
Gap Insurance typically doesn’t cover the following:
- Vehicle payments due to financial hardship, job loss, disability or death
- Car repairs
- The value of your car or balance of a loan if your car is repossessed
- A rental car while your car is in the shop
- Tended warranties you add to your car loan
- Rental car while your vehicle is in the car
A quick example of a monthly cost for GAP is AP insurance, which would cost around $20 to $30. The cost could down along with the cost of collision and comprehensive as the vehicle ages.
Alternatively, you can purchase gap insurance at your dealership as well. It’s a little likely to cost you significantly more. Many dealerships sell gap insurance coverage for an average of $500 to $1,000, and they often require a large payment upfront.
There’s many variables to the specific cost to any insurance. You’ll need to obviously get in contact with an insurance agent on follow up questions. GAP insurance isn’t necessarily accredited as it should but should be taken into high consideration for people who have a loan or lease.