GAP Insurance for Automobiles: Why It's a Good Idea

The benefits of GAP insurance are often misunderstood.  When you bought your car, the dealer may have tried to explain it, but you’re still confused.  In this article, we will discuss GAP insurance and answer some of your questions so you can make an informed decision about this optional coverage.  

GAP means Guaranteed Asset Protection insurance.  The coverage is offered as a way to help you avoid out-of-pocket costs if your car is stolen or totaled.  It is also referred to as loan/lease payoff insurance.  

What Does GAP Insurance Cover?

It’s no secret that the value of your new car depreciates quickly.  Before you realize it, you owe more for the financed vehicle than its actual cash value.  This is known as being upside down on a loan or having negative equity.  

So, what happens if your car is stolen or totaled before it’s paid off?  Without GAP insurance coverage, you’ll end up paying off the loan for a vehicle you can no longer drive.  Obtaining a replacement vehicle will add to the financial burden. Fortunately, you can prevent this kind of situation with GAP insurance.  What does GAP insurance cover?  It covers the difference between what you owe and the ACV in the event of a total loss.

How GAP Insurance Works

If you are upside down in a vehicle loan and claim a total loss, GAP insurance protects you.  For instance, let’s say you still owe $15,000 on your vehicle loan.  When you file a total loss claim the insurance adjuster determines the ACV of your car to be $13,000.  If you have GAP insurance, it will cover the remaining $2,000 balance.

In general, you’ll benefit from GAP insurance more when your financed vehicle is less than three years old.

Do I Need GAP If I Already Have Full Coverage?

Yes, you should consider GAP insurance even if you have full coverage auto insurance.  Full coverage does not cover the difference between what you owe on the vehicle and its actual cash value in the event of a total loss.  

Some examples of why you need GAP insurance although you already have full coverage:

  • You made a small down payment (less than 20%)
  • You took out a long-term loan (60+ months)
  • Your vehicle has a high depreciation rate
  • The contract has a high-interest rate
  • The lender requires GAP insurance

GAP coverage is not required for vehicle owners who own their vehicles outright.

How Much Does GAP Insurance Coverage Cost?

The cost of GAP insurance varies, depending on the provider.  For example, if you purchase GAP through the dealership it can cost hundreds of dollars annually.  Adding GAP coverage to your auto insurance policy can be cheaper, typically about $40 to $60 per year.

How Is GAP Insurance Calculated?

GAP insurance is calculated differently depending on the provider.  Lenders and dealers typically calculate the cost based on expected vehicle depreciation and the loan amount.  An automobile insurance company will calculate GAP insurance based on your driving profile and the vehicle you drive.

When Does GAP Insurance Not Pay Out?

Some GAP insurance policies have a limit on the amount they will pay.  For instance, some policies only cover 25% of the vehicle’s ACV.  If your car has depreciated significantly, this amount may not cover the loan payoff.  

If your car is damaged but not declared a total loss, GAP insurance will not pay out.  Also, if you are not up-to-date with our auto insurance premium payments, GAP insurance will not pay out for a loss.

How Long Should I Keep GAP Coverage?

GAP coverage is only necessary for one or two years.  But, in some cases, the coverage is for the life of the loan.  Aside from paying off the loan, gap insurance does not have an expiration date, so you can cancel it if you no longer want it.  If your car is worth more than the loan, it is not needed.

Looking for GAP Insurance?  Talk to Sandifer Insurance Agency First

Buying GAP insurance from the dealership is convenient, but it can cost more.  This happens because the premium is added to your loan, with interest.  However, if you buy GAP through an automobile insurance company, it is added to your existing coverage without interest.  

To find out where you can obtain GAP insurance, contact Sandifer Insurance Agency.  We will help you get the most affordable premium with a reliable provider.  We also offer homeowners, life, automobile, farm, and commercial insurance.  Regardless of your insurance needs, Sandifer will make sure you are covered.

As a family-owned local business located near downtown Cheraw, SC, customer service has been our top priority for over 40 years.  Feel free to contact us if you need assistance finding the right GAP coverage.  We look forward to having you as a member of our family of satisfied customers.


Leave a Comment

Your email address will not be published. Required fields are marked *