Whether you purchase or lease your car, you need to understand what GAP insurance isall about and how it can benefit you when you need it the most.
GAP stands for “Guaranteed Auto Protection.” It’s a must when you’re leasing your car, however, if you buy a car and only make a small down payment, you might also need a GAP policy.
It’s because of depreciation. Look, all cars depreciate in value, you may even find yourself “upside down” before leaving the lot, or soon thereafter. In fact, according to some estimates, certain cars lose as much as 30% of their value within the first three months.
Standard auto insurance policies cover the depreciated value; in other words, insurance pays the current (depreciated) market value of the vehicle. So what you owe the finance company on your car at the time of a potential accident and the amount your standard auto policy pays can create a negative financial “gap”. If you have GAP insurance it can cover the “gap” so you’re not out of pocket.
Here’s some reasons why you might need GAP insurance:
- Made a down payment equalling less that 20% of the value of the card
- Took financing for 60 months or longer
- Leased the vehicle
- Purchased a vehicle that depreciates faster than the average
- Rolled over negative equity from an old car loan into the new loan
On most auto insurance policies, including GAP insurance with collision and comprehensive coverage adds only about $20 a year to the annual premium, so it’s a small price to pay for a lot of security. Your car dealer may offer to sell you gap insurance on your new vehicle, but it typically costs much less from your insurance agent.