The time it takes to position your rearview mirror is about the same amount of time it takes for your new car to start to lose its value. Your vehicle starts to depreciate so quickly that if it’s involved in an accident or stolen before you’ve paid off the loan, you may owe more than the auto is worth. That’s where Guaranteed Asset Protection (GAP) coverage can help.
What is GAP coverage ?
GAP insurance is optional, additional coverage to help you cover the “gap” between the value of your car and what you owe on your auto loan. This type of insurance is not mandatory in North Carolina, but is most often added with the purchase of new and used cars and trucks.
Why you may need this insurance
You may need GAP insurance to protect against total loss if you’re still making payments on your vehicle, since the comprehensive section of your standard auto policy only pays what your car is worth at the time of loss. According to the Insurance Information Institute, you could also benefit from GAP insurance if you bought a car that depreciates faster than average autos, like a luxury car, or if you rolled over a car loan where you were upside down on the payments.
How does it work?
GAP insurance helps bridge the gap between the value of your car and what’s owed on your vehicle loan. For instance, let’s say you finance a new car for $30,000 and you’re later involved in a serious accident where your vehicle is totaled. At the time of the wreck, if the book value of your car is determined to be $25,000, your insurance company will only pay the current value of the auto — $25,000. You’re responsible for the $5,000 remaining on the loan, or the “gap” between the original car value and the current value.
How much does GAP insurance cost and where can I get coverage?
Total costs vary. However, this type of protection generally doesn’t add much to your lease or finance payment, nor to your auto insurance payment, depending on where you buy your policy.
A car dealer, finance agency, auto insurer or your Credit Union are just a few places to get GAP insurance. Their requirements for coverage may differ. A GAP policy from an auto insurer may cost less than buying it from the dealership or lender when it’s included with your collision and comprehensive coverage. If purchased as part of your auto loan, GAP coverage costs also can be rolled into your monthly car payment. Your auto insurer may add the costs directly into your monthly policy payment. If you found a third party that only sells GAP insurance, you’ll need to pay them directly. LGFCU offers GAP insurance as a one-time, low flat fee compared to the average cost at a dealership.
So be sure to ask around before deciding which company to seek coverage from, if you want the added protection. GAP insurance could make a big difference in closing the coverage gap in the event of a total loss.
The advice provided is for informational purposes only.