Insurance refers to a financial service that is available to individuals or groups. Given the number of different insurances available, such as automobile, life, and health insurance, it would seem prudent for consumers to understand what each one does before committing themselves to purchase any.
GAP insurance, short for the term “Guaranteed Auto Protection,” is a popular form of auto insurance used by consumers to protect their cars against depreciation. What it does is offer protection that is not normally offered by a standard car insurance policy.
Some of the topics within GAP coverage are discussed here, including how it works and its benefits.
Understanding GAP Insurance?
You may be wondering, what is GAP insurance? GAP insurance provides a layer of protection to drivers by providing coverage for the difference between what a driver owes on their auto loan and the car’s resale value.
One main benefit of GAP insurance is that it can cover more than just a car’s original value. For example, if a car is stolen and is worth $5,000, GAP insurance would cover the difference between that value and what the owner owes on their loan, whether the difference was $500 or $4,500.
Understanding GAP insurance is a simple process if the consumer understands car loans and resale values. The policyholder must know what the car is worth when it is purchased and can then calculate, based on a standard loan amount, how much they will owe on their car. GAP insurance will pay the difference if that amount exceeds what the car is worth at a resale time.
How Does GAP Insurance Work?
GAP insurance is a type of coverage that protects drivers against the losses they may incur when their car is damaged or stolen. A policyholder purchases GAP insurance on their car, which means it appears as an additional line item on the bill. The cost of the policy is not included in the monthly car payment and is usually paid annually or monthly, depending on the specific provider.
GAP insurance providers differ in what they pay and charge for their services. Some include additional coverage such as collision, comprehensive, and theft/damage/liability, but premium amounts may vary.
What Does GAP Insurance Cover?
Under a GAP policy, the amount of money the driver is required to pay on the car is different than what the car would have sold for on the used car market. Car owners are protected against the loss in the resale value of a vehicle should it be stolen. The money that is paid out by GAP insurance also covers car payment cancellation fees if a policyholder ends their car loan early. It also covers lease penalties for ending a lease early.
How to Add GAP Insurance to Your Policy
When purchasing GAP coverage, policyholders can purchase at the same time they sign up for an auto policy or later. It is highly recommended that you add coverage at the time of purchase to avoid any unexpected situations. If your car is totaled or stolen, you must notify your provider so they can determine what will be paid out on your claim.
For example, if you purchase a GAP policy at the time of purchasing your car and then your car is totaled one year later, you must call the provider and inform them of the incident to pay out your claim. If you wait until the vehicle has been totaled or stolen to purchase a policy, it will not be covered under the GAP coverage. Providers do this to ensure that policyholders are taking steps to protect their cars from depreciation by purchasing GAP insurance when they purchase their vehicles.
Do You Need Gap Insurance?
GAP insurance is not a requirement, but it may benefit some drivers. The policy’s purpose is to cover a difference in value between the car on which the coverage has been added and its replacement value. The amount you are guaranteed to get back on your car will depend on what you paid for your policy, what you owed on your loan, and how much your car was worth at the time of purchase.
Many consumers purchase GAP insurance to protect themselves against unforeseen circumstances such as theft and accident. They know that even if the car is totaled, they will be compensated for the money they still owe on the loan. If a car is stolen, whether insured or not, the driver may be left with a much higher bill later.
Automobile insurance carriers offer GAP coverage to their clients to protect them if the car is totaled or stolen. By purchasing GAP coverage, drivers can be assured that they will be reimbursed for the money they owe. It is important to understand how GAP insurance works and how it can benefit you before deciding on whether to purchase it.
Author information: Maggie Bloom graduated from Utah Valley University with a degree in communication and writing. In her spare time, she loves to dance, read, and bake. She also enjoys traveling and scouting out new brunch locations.