What is a GAP insurance policy? You might have heard the term before, but do you know what it is and what it actually covers? GAP stands for Guaranteed Auto Protection. A GAP policy covers the difference between what you owe on your vehicle loan or what a new vehicle would cost and what the insurance company says the vehicle is worth.
GAP insurance can be vital for those who purchase a new car. You've heard it said that the second you drive your new car off the lot it drops in value. It's true. Once you take delivery of your new car, it becomes a used car to the rest of the world and is worth less than what you paid for it five minutes earlier.
When you are in an accident and your car is totaled, the insurance company will pay you for the value of the car. They don't pay you the amount needed to buy a new car!
GAP insurance is used when the amount you own on the car is more than the car is valued by the insurance company. It pays the amount that you owe and you end up even, although you'll need to find a new car.
Most of the time GAP insurance is available when purchasing a new car. However, some insurance companies will offer it on any vehicle, new, used or leased. GAP also covers theft as well as accidents, but be sure to check the actual coverage of your policy.
Talk to your insurance company before you start shopping for a new car. There may be exclusions and may not cover loan amounts over $100,000 or loans over long periods of time, such as 5 years.
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