What is GAP Insurance?
Guaranteed asset protection (GAP) insurance closes the gap between standard car insurance benefits and the amount still owed by a car owner in the event of road accident, theft and related risks. GAP insurers will pay the amount beyond the coverage of a standard insurance policy should the coverage is not enough to fully discharge the debt of the car owner.
How are GAP insurance claims computed?
Let’s say that a GAP-insured owner had a $27,000 car and still owes $20,000 to his car dealer, which is amortized throughout a three-year period. The car is damaged in a road accident and is revalued by the owner’s insurer at $15,000. The owner is thus relieved of his $15,000 debt through his car insurance, but still owes $5,000. This is where GAP insurance proves to be beneficial, as it shoulders the remaining $5,000 debt (the difference between ordinary insurance claims and the total debt of the car owner).
Is GAP insurance for me?
GAP insurance is a wise investment for those who are at high risk of paying more than what their cars are worth. For those who have a low down payment, a car that depreciates rapidly, or a high-interest loan, GAP insurance offers security and peace of mind.
Lessees have also good reasons to buy GAP insurance. Leased cars are under the liability of lessees, that is, they are obliged to pay the full-price of rented cars if they get stolen or damaged. Since such financial risks are quite high, many lease contracts actually require GAP insurance on the part of the lessee.
On the other hand, buyers that have paid a large down payment will benefit less from GAP insurance. Since amortization is set at a minimum level, the risk of paying more than the market value of a car does not warrant GAP insurance.
Opting out of GAP insurance
As discussed above, GAP insurance is not cost-effective for all types of car owners. However, many car dealers are automatically adding GAP insurance contracts to car purchases regardless of the lack of need for such insurance. Consumers have the right to opt out of GAP insurance contracts that are readily sold along with their car mortgages should their circumstances do not warrant such insurance.
What to look for when buying GAP insurance?
Discounts – A number of insurers do not openly advertise their discounts, but they are nevertheless available to consumers who are on the look out for the best prices.
Coverage for used cars – Some GAP insurers do not cover vehicles bought from the second-hand market.
Insurance premiums – Remember that cheaper insurance premiums often come with a price. Read GAP policies and verify if the coverage meets your needs at reasonable costs. Pay particular attention to collision provisions, disclaimer, and terms for the cancellation of contract.
Writer: EVillamin
Tags: asset protection, car insurance, car owner, car owners, car purchases, gap insurance, high risk, insurance benefits, insurance contracts, insurance policy, interest loan, lease contracts, lessee, lessees, peace of mind, rented cars, road accident, standard insurance, value of a car, wise investment
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