With the prices of cars today going out of sight, it is important to make sure you are protected in the event of an accident. In many cases, your insurance will not pay off your vehicle if it is totaled in an accident. That is why many lenders and dealers will offer you GAP insurance to protect your investment and your credit rating.
What is GAP Coverage?
GAP stands for Guaranteed Auto Protection. It protects YOU in the event of a total loss of your vehicle.
GAP comes into play:
- If your vehicle is in an accident and is a total loss or is stolen and non-recoverable. This also includes flood, fire, hurricanes, etc.
- Your insurance will pay the actual cash value of the vehicle (what the vehicle is worth, not what you owe)
- GAP will pay the remaining amount on the loan plus your insurance deductible.
GAP coverage is designed to protect your investment on a vehicle you are still making payments on. Since a vehicle begins depreciating as soon as you drive it off the dealership lot, GAP coverage is a way to assist in any unforeseen loss that you might not expect. Your insurance company will only protect you for the ACV (actual cash value) of the vehicle. GAP coverage is designed to cover you for the difference between that amount and the amount you owe on the vehicle.
- You have a remaining a balance of $8,000 on your loan. (The remaining balance that needs to be paid before you can purchase a new car)
- You car is totaled and your insurance pays $4,000 for your car (the vehicles ACV)
- GAP will pay the remaining $4,000 plus your insurance deductible up to $1,000.
- You are out of pocket NOTHING and can get into a new car faster.
GAP coverage is a small investment on your part but could save you a considerable amount if something were to happen to your vehicle unexpectedly.