The Importance of GAP Insurance
When it comes to end-of-deal dealership add-ons, a lot of us can be wary about agreeing to anything. Is it really a necessary expense? Is it overpriced? Will it actually come through and help me when I need it? These questions are valid. Dealerships are notorious for trying to slip in unwanted costs right at the end of a deal and hoping you won’t notice. It’s important to look over the purchase agreement very carefully when it’s time to sign.
However, GAP insurance is one add-on that is, undeniably, always worth buying. GAP stands for Guaranteed Asset Protection, and it comes into play in the event your vehicle is declared a total loss while you’re still paying on it by covering the difference between the depreciated value of your vehicle (the amount your insurance company will pay you for your vehicle) and what you still owe to the lienholder.
For example, if a vehicle you owe $15,000 on is totaled, and your insurance company writes you a check for $10,000, you’re still responsible for the remaining $5,000 balance on the loan. GAP insurance coverage will pay the balance (the gap) off and let you move on with your hunt for a new vehicle without being stuck paying on a car you don’t have anymore.
If you’re financing a vehicle and putting less than 20% down, or financing for a term of 60 months or longer, GAP insurance is something you should seriously consider.
Where to Buy GAP?
There are a few places you can secure GAP insurance. One of them is through your own insurance company. Many insurance companies will offer GAP insurance for around $20 per six-month policy. This is often considered a better option than buying it from the dealership because the payment will not be part of your loan charged interest. However, it’s important to understand what, if any, restrictions your insurance company has on the coverage they offer.
If your insurance company does not offer GAP insurance, you can turn to the lienholder. Lenders will usually allow the cost of GAP insurance (usually somewhere between $500-$700) to be added onto any vehicle purchase approval and rolled into the loan. Now it’s just part of your monthly payment. As an added benefit, it’s possible to cancel GAP insurance once the value of the vehicle matches the remaining balance on your loan. This applies to refinancing a vehicle and having it totaled out as well.
There is also the option to buy GAP insurance outright, generally for somewhere between $200-$300. Regardless of where you choose to buy it, having GAP insurance on any financed vehicle is always a good option. Giving yourself the peace of mind and security is worth the up-front cost and, ultimately, priceless.
