What is GAP Auto Insurance and When Do I Need It?

Automobile GAP insurance is a relatively new development in the world of vehicle insurance. As the cost of purchasing a new vehicle gets higher and higher every year so does the price of depreciation. Everyone is aware that the fair value of a vehicle goes down systematically once it has been bought, but few people realize how quickly. In fact, a vehicle that has just been purchased can depreciate by as much as 20% the second it is driven off the lot. While this may not seem to have any direct consequences until the vehicle in question is resold, the fact is that the payouts offered by insurance companies when a vehicle is stolen or totaled are not relative to the price of the vehicle in-store, but to its depreciated fair market value. Thus it is very possible that a person who still owes $20,000 dollars on a vehicle that was stolen or totaled will find that their insurance company will only cover $15,000 dollars, its current depreciated value, and they will still owe $5,000 dollars on a car they no longer even have in their possession. This is where GAP insurance comes in.

GAP (Guaranteed Asset Protection) insurance specifically covers the difference between the worth of a car and its fair market value. In the above example, if regular vehicle insurance would cover no more than $15,000 dollars, GAP insurance would cover the remaining $5,000 thus assuring the owner would not owe money to a dealership for an inexistent asset. GAP insurance is, in most cases, already included in the cost of the lease a customer is paying for a new car, as companies who lease car are not in the business of losing money and always seeking to protect their assets. Sometimes, however, they are offered the choice to pay for GAP insurance the moment they buy the car or not at all. Opting not to pay for it immediately, however, is not as final as some dealers would have one believe as there are companies that offer GAP for vehicles up to 12 months after they were purchased, for refinanced cars and even for used ones.

GAP auto insurance is for anyone who wants to protect him or herself from the possibility of owing money on an asset that is no longer in their possession. It is of particular importance for people who purchase vehicles with little to no down payment and/or prolonged payment plans as the value of a vehicle drops so quickly. Anyone who is leasing a vehicle and has it completely coverage by their insurance should make the leap and get a complementary GAP plan, as this will protect them from owing money on a depreciated and no longer existing asset due to any unforeseen eventuality that is beyond their control.