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If you have ever purchased or leased a new vehicle, you've probably heard of GAP insurance. The acronym stands for "guaranteed asset protection," and the insurance is sometimes alternatively referred to as "loan/lease gap coverage." This optional car insurance will help pay off your auto loan in the event that your car is totaled or stolen while you're still paying it off beyond its depreciated value.

 

How GAP Insurance Works

GAP insurance covers the gap between what you owe and the depreciated value of the car. If your vehicle is totaled, your regular insurance will only pay the depreciated value of your car, and you may end up having to pay off the rest of a loan on a vehicle you don't have anymore. GAP insurance covers that extra amount you could potentially owe.

For example, let's say you bought a $30,000 car, and that car gets totaled in a collision. You still owe $25,000 on the car, but the current value of the model after depreciation is only $22,000. This second value is what your normal insurance would cover, paying it directly to your lender to pay off most of the loan. Without GAP coverage, you would still owe $3,000 on the loan, left over from the $22,000 that your insurance paid. But if you have GAP insurance, it will take care of that extra $3,000 so you won't have to pay anything extra out of your pocket on a car you no longer have.

 

Should You Have GAP Insurance?

When you lease or finance a new car, you'll almost always be required to have an insurance policy with both collision and comprehensive coverage. GAP insurance is an optional addition that works with these to give you complete coverage over the price of your loan. While not necessary by law, GAP insurance can be a good idea, especially if your loan is longer than 60 months, or if you made less than a 20 percent down payment.

 

To add GAP insurance to your lease or loan-or to learn more about how it works-set up a meeting with the financial experts here at Ginn Chrysler Dodge Jeep Ram.