The term “GAP insurance” has been featured in recent headlines, and it really is news to a lot of people. If you’re wondering exactly what GAP auto protection is and whether you should have it, you’re not alone. While GAP is a smart investment for some people, it might not be worth the cost for others.
What Is GAP Insurance?
GAP is an acronym that stands for Guaranteed Auto Protection. It’s also a reference to the gap that can exist between your car’s actual value and the amount of insurance coverage you have for it. Most vehicles depreciate significantly after purchase; on average, new vehicles lose around 20 percent of their value after just one year. If you get into an accident and your car is totaled, you just might find yourself owing more than what the insurance company is willing to cover. GAP coverage fills that void between what you owe on the car and the amount your main policy covers.
What GAP Is Not
It’s an all-too-common misconception that the “guaranteed coverage” in GAP means any and all things auto-related will be paid for after an accident. It’s important to understand exactly what you’re getting with GAP. This coverage does not guarantee your payments in the event of an illness or job loss, and it does not necessarily cover extras such as rental cars or repairs that are outside of your warranty.
Understand Your Policy
Simply carrying the minimum required auto insurance on your car may not be enough to ensure you’ll be completely covered after an accident. You can’t make an informed decision about whether paying for the additional insurance is worth it for you until you know what’s already covered in your main policy.
Who Should Get This Coverage?
GAP insurance makes sense for many people. Figure out how much you owe on your auto loan, and then research the current value of your vehicle. If there’s a significant difference, you may want to consider GAP. If you have at least a four-year loan or if you didn’t put a big down payment on your car, chances are that GAP would benefit you.
Who Doesn’t Need It?
If you are paying down your auto loan very quickly or you purchased a used vehicle that has not lost significant value, the cost of GAP insurance might not be worth the return. If you have a gap in coverage that is small enough for you to easily pay for if needed, you may not want to bother with this type of insurance.
Most experts recommend you don’t get GAP insurance directly from the dealership, as you may be able to find better rates elsewhere. Going through a trusted local credit union for this type of coverage is often the easiest and most cost-effective route.