What is GAP Insurance?
GAP insurance is an optional type of insurance coverage that is designed to help protect car owners against financial losses that may occur when the market value of their vehicle falls beneath the amount they still owe on their loan or lease.
This “gap” often occurs when a vehicle suffers extensive damage in an accident or other covered loss but continues to be worth less than what is owed on the loan, leaving the owner responsible for paying off the remaining balance before being able to take on another car loan.
Especially for those with low income, paying off the remaining balance for a totaled car may be out of the question. And especially if you have bad credit, it can then be difficult to get into a new car loan quickly.
With GAP insurance, however, car owners can have some peace of mind that they will not need to pay off these remaining funds themselves if their vehicle is damaged, as GAP insurance will cover any gap that remains between their vehicle’s market value and what they owe on their loan after a standard car insurance payout.
So if you are concerned about covering yourself in case your car falls below its market value, GAP insurance might be the right choice for you.
Do You Need GAP Insurance?
GAP insurance is not typically required, but can be very helpful in some cases. It is particularly helpful if you have GAP insurance and substantial negative equity.
Vehicle equity is the difference between the value of the car and the amount owed on the lien. So, negative equity occurs when a vehicle is worth less than the amount owed.
Common situations that result in negative equity include:
- Financed a car with a small down payment
- Rolled over negative equity from a trade in
- Unexpected or rapid depreciation of a vehicle
All of these situations make GAP insurance more appealing because it can cover the difference of the amount owed and the value in the case of a total loss of your vehicle.
How Much Does GAP Insurance Cost?
The cost of GAP insurance will depend on a variety of factors. Some of these factors may include:
- Where you live
- Age
- The type of vehicle you own
- Driving history
- Financial situation
- Specific needs and preferences
Additionally, some providers may offer different price points or options for GAP insurance coverage than others, so it is important to research your options carefully before making a decision about which plan is right for you.
Ultimately, when it comes to cost, the best thing to do is compare different providers and read reviews from other customers in order to find the plan that offers the most value for your budget.
GAP Insurance FAQs
What is GAP Insurance?
GAP insurance is an optional type of insurance coverage that is designed to help protect car owners against financial losses that may occur when the market value of their vehicle falls beneath the amount they still owe on their loan or lease.
Do I Need GAP Insurance?
GAP insurance is not typically required, but can be very helpful in some cases. It is particularly helpful if you have GAP insurance and substantial negative equity.
What Does GAP Insurance Cover?
GAP insurance is intended to cover the difference, or “gap”, between the remaining balance of a loan and the value of a totaled or significantly depreciated vehicle plus any insurance payouts.
What Does GAP Insurance NOT Cover?
GAP insurance coverage may vary in some cases, but it often does not cover negative equity rolled over from previous loans, financed in addition to the totaled vehicle. This may require a special policy.
How is GAP Insurance Different From Car Insurance?
While car insurance is focused on covering your vehicle in the event of an accident or other incident that damages or destroys your vehicle, GAP insurance is more concerned with protecting you from losses that go beyond the value of your vehicle.