GAP Insurance – What It Is and Why You Need It
Picture it. You traded in your old rundown, beat-up jalopy for the car that you’ve had your eye on for months. It’s got leather seats. It’s got the navigation package. You jam out to your favorite satellite radio station every day on the way to work.
You had to finance it for 72 months and could only put $1000 down but the payments are just right, and six months later, you swear it still has the new car smell. You’re going to drive this thing until it dies with 200,000 miles on it. It’s the best car ever!
Until you’re t-boned in the middle of an intersection by someone who flew out of nowhere and ran a red light.
You’re okay, but your new baby is totaled. Not only do you need another vehicle, you’ve got a problem. Your auto insurance is only paying part of what you owe on your car, leaving you owing thousands on a car you can’t even drive.
What is GAP Insurance?
A standard Massachusetts auto insurance policy covers the actual value of your vehicle, regardless of what you paid for it and what you owe on your current auto loan. A brand new vehicle will likely lose at least 20 percent of its value in the first year. Unfortunately, your loan doesn’t come with that same feature.
If you currently owe $20,000 but the car is only worth worth $16,000, there’s a gap of $4000. In the event your car is totaled, you’ll only receive $16,000 but the bank will want the rest of their money – and you’ll have to pay it. GAP (Guaranteed Asset Protection) insurance covers that difference between what you owe and what your vehicle is worth so you don’t have to pay out of pocket for the difference.
When Do You Need GAP Insurance?
Not every vehicle you finance needs GAP insurance, but many of them will. Use this list to decide if it’s in your best interest to add on the coverage:
- You financed for more than 60 months.
- You made a downpayment of less than 20 percent.
- You leased your vehicle.
- You rolled over the remaining balance on your old auto loan into this new one, giving you negative equity before you even drove off the lot.
Anytime the amount you have left on your auto loan is higher than the actual value of the vehicle you’re driving, GAP insurance is a good idea. Accidents can happen at any time, and it doesn’t have to be catastrophic in order to total your car. GAP insurance means you’re not feeling any additional pain when you have to cough up more money to give to the bank on a vehicle you can no longer drive.
GAP insurance is relatively inexpensive when you purchase it through your auto insurance company. If you’d like to add gap insurance to your current policy, contact us at Click Insurance today.