What is Gap Insurance

Let's Know About GAP INSURANCE

Gap insurance, also known as guaranteed asset protection insurance, is a type of insurance designed to provide you with financial protection in the event of a total loss of your vehicle. It is often offered as an optional supplement to car insurance. Gap insurance is especially important if you finance or lease a vehicle.

This is how gap insurance works:

1. Vehicle Depreciation: 

New cars depreciate very quickly, often faster than you can pay off your car loan. If your car is involved in an accident, stolen, or totaled, your standard car insurance coverage is typically based on the vehicle's current market value, which is likely to be much less than the amount you owe on your car loan.

2. Gap Insurance 

Gap insurance covers the difference, or "gap," between the amount you owe on your car loan or lease and the actual cash value (ACV) of the vehicle at the time of settlement of the loss. In other words, you pay off the balance of your loan or lease so that you don’t end up owing money on a car you no longer own.

3. Protection in Certain Situations: 

Gap insurance is particularly useful in the following situations:

• You have a new car that is depreciating rapidly.
• You have paid a small deposit for your vehicle.
• You have a long-term car loan (e.g. 60 months or more).
• You have rented a vehicle.

4. Gap Insurance Cost: 

Gap Insurance Cost may vary. You can purchase it from your car insurance company, the dealer where you purchased or leased the vehicle, or a specialist gap insurance provider. The fee can be a one-time down payment or rolled into your car loan or lease payment.

It’s important to note that gap insurance only covers the “gap” between the loan balance and the ACV. Deductibles, past due payments or other unpaid items are not included.

While gap insurance can be valuable, it's not always necessary for every car owner. If you own your vehicle outright, the car's value has dropped significantly, or you can easily cover the "gap" in the event of a total loss, you may not need gap insurance. However, if you're financing or leasing a car and want to protect yourself from financial loss in the event of an accident or theft, gap insurance is worth considering.