- Vehicle Insurance

Guaranteed Asset Protection Insurance

Guaranteed asset protection insurance or GAP insurance is an optional supplement available to new car owners that provides a monetary safeguard against specific types of loss (such as accidents and thefts) that are usually not included in standard auto insurance policies.

In the event that your vehicle is completely written off, GAP insurance will cover the unpaid balance of any existing automotive loan by covering the difference between the depreciated actual cash value of the lost vehicle and any outstanding loan balance.

For example, the new car that you bought for $20,000 with $500 down and monthly payments of $350 is totalled six months after purchase. Your car is now valued at $16,000 which you will be responsible for paying (less your collision deductible if the accident was your fault). You’ve made six monthly payments plus your down payment, for a total of $2,600; you still owe $17,400 on the car. In a case like this, gap insurance would pay the $1,100 difference between what collision insurance covers ($16,500) and what you owe on the car ($17,400).

It is important to note however, that if your insurance company determines that your deductible applies, that money will come out of your pocket, regardless of whether you have GAP insurance or not.

This type of car insurance is perfect for those car owners who expect, in the event of a write-off, to owe more than the car is worth or who have bought a car that depreciates rapidly or that was bought with a high interest loan and a minimal down payment.

Although a small minority of insurance agencies may provide GAP insurance for any vehicle, new or used, it is usually only available on new and leased vehicles. GAP insurance is usually built into lease policies but not always. Be sure to check into the terms of your lease to find out if GAP insurance is included. If it is not, you may be able to purchase GAP insurance from your dealership but at a much higher premium. Buying from your current insurance provider is always recommended.

As the coverage provided by a GAP policy may vary with each insurance company, it is always wise to compare policies to ensure you are receiving the best value and coverage. If you choose to forgo GAP insurance, you will be required to pay the depreciation in the case of a total loss of your vehicle. If you plan on leasing a car or expect to owe more than a car is worth in the event of an accident, GAP insurance may be ideal for you.