Getting into an accident or having a car stolen alone is a horrible experience but it could be even worse when you suddenly have to pay thousands of dollars for a car that is no longer at your service.
GAP Insurance Explained
The term ‘GAP’ stands for ‘Guaranteed Auto Protection’ (or ‘Guaranteed Asset Protection’ in some sources) and represents a gap in your insurance coverage that is limited to the current market value of the car and the sum that you still may owe the finance institution in case of leasing (it is one of the methods of automobile financing) or loaning a car.
For instance, if you loaned a car for $25,000 and put no money down, you may still owe your loaner $23,000 a year later while the car’s value may be decreased to $19,000 due to depreciation. If an accident totals this car, you will have to pay $4,000 from your pocket. And that’s exactly what the GAP insurance covers.
When is GAP Insurance Helpful?
It is an indispensable financial instrument for leasing a car. Without it, you may be vulnerable to huge losses, and the risk is increasing with the car’s price. That’s why many luxury automakers such as Audi, for instance, include GAP insurance in their leasing offers.
It is also very helpful for loaning a car with small down payment. The general rule is that if you’re putting down less than 20 percent on your car, you may need GAP insurance. The percentage may be higher if the car is rather expensive and depreciates quickly.
Things to Consider Before Buying GAP Insurance
Some companies may force you to accept GAP insurance while signing a lease or loan contract. In general, you can decline these offers if you don’t need GAP insurance or wish to apply for cheaper policies from third-parties.
There are car insurance companies that sell GAP policies any time during the lease term.
Your GAP policy might not be honored if you don’t have collision and comprehensive insurance coverage (they are required for most lease contracts, though).
Make sure to follow all of the requirements specified in your GAP policy. We hope that you can avoid any accidents but it is always good to have such things backed.