What is GAP Insurance?
What is GAP Insurance? and Should you get it?
If you’ve ever experienced buying a car at a dealership before, then you know what it means to be offered GAP insurance which is an acronym for Guaranteed Asset Protection Insurance. Where most people are typically introduced to such coverage is when they make it to the stage in the car buying process where they’re speaking to a finance manager. GAP insurance was designed to add additional coverage to the insurance that you may already have. Which leads us to answer the following questions for you; What is GAP insurance? Is it worth the purchase? How do I get GAP? Our answers to these questions will provide you with the right information to decide when you get to the finance office.
What is GAP Insurance?
GAP usually has a long definition, but all that GAP entails is additional insurance on a car that covers the vehicle’s value between the amount owed and what the vehicle is worth. That may have still been a bit confusing, so we put together an example to explain the concept of GAP insurance even further. Let’s imagine you purchase a vehicle for $25,000 and finance the entire amount over a 60-month term. Then let’s say 6 months later your vehicle gets totaled by a fallen tree (Seems overly simplistic, but you get the idea). With this accident, your insurance company would pay out the car’s value which is in this case $15,000. Unfortunately, this would mean that you probably still owe about $24,000 on your loan. With GAP insurance, you may receive the $9,000 difference in order to avoid losing any money in the event of an accident. See below for a figure showing this example!
Should you purchase GAP Insurance?
Even with all that information, you may still be wondering if you should buy GAP insurance. Truthfully, the answer to that question relies on the way that you pay for the car that you’re buying. If you pay for your car with cash or make a substantially large down payment, then there is no need for a GAP purchase. The reason is because GAP is only designed to cover a customer in situations where they owe more than the worth of the car. However, in most cases customers typically finance their vehicles for a long term, or they only provide a small amount as down payment. If that’s the case, then we recommend you seriously consider purchasing GAP insurance. Cars tend to depreciate much faster than you can pay off your loan. So, if you don’t purchase GAP, then you may end up owing your bank more than what the car is worth should you get in an accident, which is the purpose of GAP insurance.
How Do You Get GAP Insurance?
Just like any other insurance policy, we recommend you shop around before settling for any GAP coverage. However, if you hope to build your GAP insurance payment into your loan then know that you may purchase GAP coverage from Bill Luke Tempe when financing your next vehicle.
Watch our video below!
Source: Bill Luke Tempe