Misconceptions about gap insurance are as common as fender benders. So, it's a good idea to understand Guaranteed Asset Protection (gap) insurance to avoid any expensive surprises in the event of an accident.
Cars depreciate rapidly. By the time you drive a new vehicle off the lot, its value may already be 10% less than the sticker price you just paid for it. By the time a year has elapsed, that percentage will have doubled to at least 20%.
Now, along comes an inattentive driver who is focused on their phone rather than the road, and in an instant your car is totaled - a complete loss. If you think that your insurance policy will cover a replacement, you may be disappointed.
What gap insurance covers
When you owe more on the car than it is worth, it is considered "upside down." This can happen when a car is purchased with a minimal down payment. The car is likely a model with an unusually high depreciation rate, with the title, tax and registration are rolled into the sticker price.
If an accident occurs at a time when the vehicle has depreciated to the point that the value is upside down, you are now responsible for the paying the difference. Gap insurance covers this cost difference so that you do not have to pay out of pocket.
Gap insurance will not pay your premium in the event you lose your job or cannot work, nor will it pay for the repairs to your car. Neither does gap insurance cover the cost of a rental while your car is in for repairs.
Where to get gap insurance
If you are not sure where to get gap insurance from, most major insurance providers offer it. There are also dedicated gap insurance underwriters and even some dealerships will include gap coverage in the financing (subject to interest).
The cost of this protection is relatively inexpensive, averaging around $20 yearly from most major insurers. If you decide to go through a lender, the cost will be higher, about $500, but you'll only incur the fee once.
Gap insurance should be used in conjunction with collision and or comprehensive coverage. Those policies will cover your vehicle up to its depreciated value at the time of loss.
If you are not sure if gap is right for you, consider:
- You put more miles on your vehicle than the average driver annually.
- You put little or no money down on your vehicle.
- You have a very long (48 months or more) loan or finance period.
- You lease rather than own a vehicle.
- You do not have savings set aside to cover emergency repairs or vehicle replacement.
If you have any questions about GAP insurance and your car financing, we are here to help. Mike Duman Auto Superstore can break down your financing options and help you find the best coverage for you. Stop by or call today!