Should I Buy GAP Insurance?
Many people wonder about GAP insurance and whether or not it is something they should purchase. It depends on a number of factors, but if you have a lot left to pay on a car loan, GAP insurance is a very good idea.
Let’s start with the people who do not need GAP insurance. If you own your car free and clear, you don’t need GAP insurance. If what you still owe on your car loan is less than what the car is worth, you don’t need GAP insurance either. Why? The reason has to do with what GAP insurance is designed to do, which is to provide you a layer of financial protection in the case of a total loss of your car.
When your car insurance company totals your car and figures out what to pay you for the lost vehicle, what you’ll get is an amount of money that it considers to be the market value of the car before the loss. If you’re early in the payback period of your loan and you didn’t put much money down, the chances are good that what the insurance company pays out to you for your totaled car is going to be less than what you still owe on it. This gap is pretty common, and sometimes the gap can be thousands of dollars.
GAP is actually an acronym that stands for Guaranteed Asset Protection, or in this case Guaranteed Auto Protection. In the case of a vehicle, it’s purpose is to cover the difference between the balance of a loan due on a vehicle and what an insurance company pays in the event of a total loss. This is one insurance product that makes a lot of sense to have. It’s usually pretty inexpensive and it helps ensure what might be one of the worst feelings in the world – having your car totaled and getting a check from your insurance company that doesn’t even come close to what you still owe on your car loan.
You may have heard people talk about being “upside down” on their loan. That’s one of the ways people refer to the situation where you owe more on a car loan than your car is worth. That’s when you definitely want to have GAP insurance.
But you’re also not required to purchase GAP insurance. It’s not the same as your basic car insurance policy, which is required in order to insure you and others in the case of accidents. GAP insurance is always an optional product, although some states do require that car dealerships offer it to people when they’re purchasing a car. It’s a sensible product with great benefits if you’re going to be paying for a car over the course of 3-5 years (or more).
Auto City can arrange for GAP insurance for you if you need it. Just get in touch with our friendly sales representatives and they will be happy to go over the details with you.