GAP Insurance: What is it and what does it cover?

Did you know that, as soon as you purchase a new vehicle and drive it off the dealership lot, it immediately loses thousands of dollars in value? As scary, and shocking, as it may seem, it’s true. You pay much more for a new vehicle than it is worth once the deal has been sealed.

Now, suppose you drive it off the lot, it loses a few thousand right away and then, three months later, you are involved in an accident that totals the vehicle. There will be a difference between what you think the vehicle is worth and what is actually still owed to the bank on it. That’s where GAP insurance coverage, which stands for Guaranteed Auto Protection, comes in.

What is GAP?

GAP coverage is beneficial to someone who purchases a newer vehicle, and it is also great for those who are leasing vehicles. Even if you lease a vehicle and get into an accident, there may be a difference between what your insurance has the vehicle valued at and what you are asked to shell out to replace it. While you may think that this can’t be for you, because you are a safe driver, keep in mind that you may not be the cause of the accident. Additionally, millions of people each year need auto repairs and replacement due to acts of nature, vandalism, or theft, or because they are the victim in a collision.

Many of the companies that offer gap insurance coverage policies will not leave you in need of a new vehicle while still paying off the balance of the undriveable one. This type of policy makes up any difference between what the insured vehicle is valued at and what is owed on it. This is especially helpful if, for example, you purchase a vehicle for $25,000 and pay $400 per month for it but it is totaled after only five months. You would only have paid off $2,000, yet the loss of value since purchasing it could be double what you had paid.

Coverage You Need to Consider

As you can see, if you have a newer vehicle or are leasing one, you could find yourself in a world of financial hurt if something happened to your car. But having a GAP policy can address that concern. For a small addition to your monthly premium, you can ensure that you will not be left paying more than necessary.