GAP insurance could be the lifeline you need if you owe money on your car in the event it becomes a total loss. General Asset Protection (GAP) insurance covers the difference between the value of your car and the value of a loan, if the value of your car is less than the outstanding loan amount.
When you add GAP insurance, you get the security of knowing that if something happens to your new vehicle, you’re covered. Here’s how GAP insurance could help you.
Why you may need GAP insurance
You may need GAP insurance since the comprehensive section of your standard auto policy only pays what your car is worth at the time of loss. For instance, if you finance a car for $30,000, but its value is only $25,000 at the time you total it, the insurance company will only pay the current value of the auto — $25,000. You’re responsible for the $5,000 left on the loan, or the “gap” between the original car value and the current value. That’s where GAP insurance can help.
GAP insurance may be mandatory as part of a lease or loan agreement with a car dealer, especially if you put down less than 20 percent. According to the Insurance Information Institute, you could also benefit from GAP insurance if you bought a car that depreciates faster than the average vehicles, like a luxury car, or if you rolled over a car loan where you were upside down on the payments.
How much does GAP insurance cost?
Total costs vary for GAP insurance. However, this type of protection generally doesn’t add much to your lease or finance payment, nor to your auto insurance payment, depending on where you secure coverage. A GAP policy from an auto insurer may cost less than buying it from the dealer when it’s included with your collision and comprehensive coverage.
GAP coverage costs can be rolled into a monthly car payment from the dealer. Your auto insurer may add the costs directly into your monthly policy payment. Finally, if you found a third party that only sells GAP insurance, you’ll need to pay them directly.
GAP insurance could make a big difference when it comes to closing the coverage gap.
The advice provided is for informational purposes only.
Article provided by Local Government Federal Credit Union.