Most auto insurance plans will only pay out the vehicle’s current market value in the event of theft or total loss. It’s easy to see how you may get into significant financial trouble if you buy a brand-new automobile and then watch as its value plummets by as much as 60% in the first three years.
Guaranteed asset protection (GAP) comes into play here. It’s supplementary insurance that kicks in if your primary insurer doesn’t pay out enough to fully restore your vehicle to its pre-accident condition or replace it with a similar model. Additionally, it discharges any current lease or credit obligations.
In principle, GAP insurance is beneficial while searching for the best auto insurance; however, most individuals pay too much for it since they get it through dealerships instead of insurance providers.
So, who should invest in GAP insurance? Let’s find out.
Who Needs GAP Insurance?
GAP insurance isn’t mandatory for all drivers, and even those who qualify shouldn’t always get it.
Only those who financed the purchase of their automobile or who leased their vehicle might qualify for it. This type of insurance is not something you need to think about if you own your car entirely.
If you financed your vehicle but still owe more than it is worth, you may want to consider GAP insurance. Finding the difference between the cash value of your automobile and the amount you owe is the easiest approach to establishing whether you need GAP coverage.
Find out whether you require auto loan refinancing by determining the difference between your car’s current market value and your loan balance. If any of the following apply to you, you may be at increased risk of needing GAP coverage:
- Your lease or loan may demand it: Your leasing or financing provider may require GAP insurance to safeguard you in the case of a complete loss.
- You signed a lengthy lease or paid a small first payment: If you put down a little amount of money or sign a long-term lease, the depreciation of your vehicle might outpace your ability to pay off the loan, particularly in the first few years.
- You drive a high-end or luxury vehicle: If you purchased a Porsche or Lexus, for example, you may end up owing more on your loan than the car is worth because of its rapid depreciation.
- You put a lot of miles on your vehicle: While depreciation begins the moment you drive off the lot, the value of a brand-new car drops significantly after only a few thousand miles on the road. The more you drive, the less valuable your automobile becomes.
Is GAP Insurance Worthwhile?
Getting GAP insurance is a good idea if the premium is manageable and you stand to incur a significant charge for the value of an automobile you no longer own. It’s crucial to calculate the difference. In the case of an accident, you may get little to no compensation if your loan payment is near the real cash worth of your car.
GAP insurance may not seem necessary, but if your automobile is worth much less than the money still due on it, it might be a wise investment.
Many policyholders are hesitant to shell out for unnecessary supplemental insurance. It’s important to keep in mind that the “gap” between the value of your automobile and what you owe on the loan will decrease as time goes on.
Where Can You Get GAP Coverage?
Generally speaking, there are three methods to get GAP insurance:
- Your insurance provider
- Your lender
- Your vehicle’s original selling dealership
The most hassle-free option is to get GAP insurance via the dealership, however, this option often comes with the highest premium.
This insurance may be available as an add-on to your auto loan from your financial institution. It’s possible to add it to your regular auto payment or pay it all at once with a one-time cost of roughly $300.
GAP insurance is also often offered by auto insurance providers for a yearly premium of $50 to $250. Several factors, like the size of your down payment and the term of your auto loan, will determine whether your insurance provider or your bank is the better financial partner.
With a longer loan term, you pay off your automobile slower and your loan keeps you and your car underwater for longer.
Final Words
Not every motorist has to have GAP insurance. However, being aware of its existence might help you better tailor your insurance policy, easing the financial burden of a complete loss. Make sure you understand everything that is included in the GAP insurance policy.
