What is GAP Insurance and Who Should Consider Buying It?
What is GAP Insurance?
If you're in the market for a new car, you've probably heard of GAP insurance. But what exactly is it and do you need it? In this post, we'll explain the basics of GAP insurance and who it's most beneficial for.
GAP insurance, short for Guaranteed Asset Protection, is a type of coverage that pays the difference between the actual cash value of your vehicle and the amount you still owe on your car loan or lease. This is important because if your car is stolen or totalled in an accident, your traditional car insurance will only pay out the actual cash value of the vehicle, which can be less than what you owe on your loan or lease.
For example, let's say you financed a new car for $30,000 and after a year of ownership, it's only worth $25,000. If your car is stolen or totaled in an accident, your traditional insurance will only pay out $25,000. However, if you have GAP insurance, it will cover the remaining $5,000.
Who should consider getting it?
GAP insurance is especially beneficial for those who:
Have recently financed or leased a new car: The value of a new car depreciates quickly, making it more likely that you'll owe more on your loan or lease than the car is worth.
Have a high car loan or lease balance: The higher your loan or lease balance, the more at risk you are for owing more than the car is worth.
Have a high-risk occupation or live in an area with a high theft rate: If your car is more likely to be stolen or totalled, GAP insurance can provide added peace of mind.
Should I still consider getting GAP Insurance if I am buying a pre-owned or used car?
Summary
In conclusion, GAP insurance is an added coverage that pays the difference between the actual cash value of your vehicle and the amount you still owe on your car loan or lease. It is mostly beneficial for those who have recently financed or leased a new car, have a high car loan or lease balance, or have a high-risk occupation or live in an area with a high theft rate.
If you're in the market for a car, it's worth considering whether GAP insurance is right for you, but make sure to weigh the cost against the added protection it provides.