Guaranteed Asset Protection (GAP) insurance is usually offered when you buy a new vehicle. The insurance covers the difference between the value of the vehicle and the amount you paid.
Most drivers don’t consider the possibility that they may not be fully compensated if their new vehicle is a totally loss or is unrecoverable. After all – it’s new. However, vehicles start to depreciate the moment they’re driven off the lot and some models lose as much as 60% of their value within the first 3 years.
If you’re in any of the following situations, you’ll probably want to look into buying a GAP policy.
Model Depreciates Quickly
You can look up your vehicle make, model and year and see about what it’s worth on the Kelly Blue Book website. Insurance companies use a similar valuation system. If your car depreciates beyond the amount outstanding on your loan, you’ll owe the finance company more than the vehicle’s value.
Low or No Down Payment
If you put down 20% or less, chances are that you might owe more than the vehicle is worth. Loans with small down payments are usually stretched over many years and your payments probably wouldn’t have much impact on the outstanding loan principle, since in the beginning, a larger portion of your payments are going towards the interest.
Rolled Over Debt to New Vehicle
If you had an outstanding balance on your old vehicle, traded it in for a new one, and rolled the outstanding loan amount over into the new loan, you could easily owe more than the vehicle value.
Most leasing companies require GAP insurance, but it’s not always included in the contract. Even when it is, it can be quite expensive if you buy it through the vehicle sales office. Instead of purchasing GAP insurance through the dealership, consider buying it from a local Independent Insurance Agency. Some contracts also include a “GAP waiver” which protects you if the leased vehicle is a total loss. Check the details and don’t assume you’re covered.
Existing Policy Does Not Cover
You may not need GAP protection if you have a fully comprehensive insurance policy that includes ‘new car replacement’ during the first 12 months of ownership. However, some will not cover stolen vehicles or when the accident was your fault. Check the fine print, and if you’re not sure, give us a call – we’d be happy to review your current policy with you.
Don’t accept what the dealership offers without shopping around first. Adding GAP coverage to your existing Rhode Island auto insurance policy premium is often a much more affordable option.
When shopping for GAP insurance check the dollar limitations of the policy. You can buy additional coverage if the cap is too low. Insurance companies typically do not cover extras you add to your vehicle or warranty charges. Nonetheless, GAP coverage could be the difference between a relatively minor inconvenience and a significant loss.