What is GAP Insurance (Guaranteed Auto Protection Insurance)?

GAP Insurance in Spanish means "Guaranteed Automatic Protection Insurance", and it's a type of insurance that helps you pay off your auto loan if a total loss is declared and you owe more than its amortized value. It is also known as gap insurance. But let's see in more detail what GAP insurance is and how it works, we will explain what it covers, how much, its advantages and disadvantages. Let's start!

📰 Contents
  1. What is GAP insurance?
  2. How does GAP insurance work?
  3. What does GAP insurance cover?
  4. How much does GAP car insurance cost?
  5. Where can I purchase a GAP policy?
  6. Do you need GAP car insurance?
  7. Advantages and disadvantages of GAP insurance
  8. Is it worth buying a GAP insurance policy?
  9. Alternatives to GAP insurance
    1. Loan / rent repayment
    2. New car replacement insurance

What is GAP insurance?

GAP insurance is Guaranteed Asset Protection Insurance or "Guaranteed Automatic Protection Insurance". It is a type of insurance which, in the event of an accident in which you have seriously damaged your car or left it destroyed, will cover the difference between the current value of the vehicle (which your standard insurance will pay) and the amount you are entitled to. I really do. .

In most cases, it's just one insurance option among many others, although in some states, retailers are required to offer it at the time a customer makes their purchase.

How does GAP insurance work?

When you buy or rent a new car or truck, the vehicle begins to depreciate the moment it leaves the dealership. In fact, most cars lose 20% of their value in one year.. Standard auto insurance policies cover the depreciated value of a car; In other words, a standard policy pays the current market value of the vehicle at the time of the loss.

Yes, when you finance the purchase of a new car and only make a small deposit, the loan amount can exceed the market value of the vehicle in the first few years of ownership of the vehicle.

However, How does GAP insurance work? Suppose you bought a new car for $ 25,000, but unfortunately you have an accident and it is unusable. And what's worse: you still owe $ 20,000.

Collision coverage would pay your lender the depreciated value of the car, say, $ 19,000. With GAP insurance, the insurer takes care of the $ 1,000 difference, so you shouldn't put anything out of your pocket. So that you can visualize it in a better way, here we leave you two examples of how GAP insurance works.

Without GAP insurance
Total loan $ 20,160
Collision coverage payment $ 19,600
Difference $ -560
Total you have to pay $ 560
With GAP insurance
Total loan $ 20,160
Collision coverage payment $ 19,600
Difference $ -560
GAP amount $ 560
Total you have to pay $ 0

It is necessary to clarify that the car insurance payment goes directly to the lender to settle the debt, in no time you receive money.

If you need help buying a new vehicle, the best option would be to have a new car replacement cover. Some insurers sell these insurances together, so to find out if you have any doubts, consult the auto insurance company you are interested in.

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What does GAP insurance cover?

GAP USA insurance can be very beneficial under certain circumstances. However, it is essential to know what is covered and what is not.

Does it cover the theft? Yes. If you are the victim of a robbery, GAP coverage will pay the corresponding difference.
Does it cover accidents? Yes. In situations where your car is damaged beyond repair, coverage for uncovered damage will apply.
Does it cover claims that are not total loss? No. GAP insurance only comes into play if your car cannot be repaired or if it is prohibitively expensive to do so.
Does it cover the deductible? No. Regardless of whether you have this insurance, you must also pay the deductible that corresponds to you for the other coverage you have.
Does it cover personal injury or death? No. GAP insurance only covers damage to the car, so it does not cover anything related to medical treatment, funeral expenses or wages lost in a car accident.

How much does GAP car insurance cost?

Buying GAP insurance is as easy as buying any other type of insurance, you can do it at a dealership, at the lender that finances your car, or directly at an insurer, the latter being the cheapest option.

Why? Well, because lenders and merchants sell the GAP for a flat rate, that it usually ranges between $ 500 and $ 700, which are the highest for this type of policy. What's more, you will pay interest on the amountas it will be incorporated into your loan.

In the meantime, Auto insurance companies charge an average of $ 20 to $ 40 per year for GAP insurance when buyers bundle it into an existing policy. This only increases the cost of comprehensive and collision insurance by an average of five to six percent, making it much cheaper.

That said, there are some factors that can affect the final price of your GAP insurance, such as the actual value of the vehicle, geographical location, age and history of claims.

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Where can I purchase a GAP policy?

These are some of the auto insurance companies where you can buy the GAP to complement an existing policy:

Moreover, companies may offer their GAP insurance or similar policies as part of a loan or rental. For example, if you finance your car directly through the State Farm bank, you can get GAP coverage at no additional cost.

Do you need GAP car insurance?

GAP insurance is not part of the minimum auto insurance in the United States, but lenders and owners can request it. However, it might be a good idea to acquire it depending on your financial situation and other special circumstances which we will explain below.

  • Your loan is large and the down payment you made was small. This results in a largest "gap" between the amount due and the depreciation of the car.
  • Your car is rented. Car rentals have lower monthly payments than loans because the renter pays much less capital each month. Therefore, many leases automatically include GAP coverage.
  • The car depreciates quickly. Some cars depreciate much faster than others. Sources like Edmunds and Kelley Blue Book are great tools for analyzing values ​​for different makes and models.
  • You have included other products in the financing of your car. Things like extended service contracts, dealer-installed extra appliances, or even a refinance, increase the amount due without necessarily resulting in an increase in the value of the vehicle.
  • The car has a high mileage. In case you don't know, driving more than 15,000 miles per year accelerates vehicle depreciation. So, if you drive a lot, GAP insurance should be among your options.
  • You have a long-term loan. Long-term loans equate to negative equity for a long time. Second Experiential automotiveToday, the average auto loan has a term of 72 months, and the longer it takes to pay off a loan, the longer it takes for payments to reach the car's amortization value.

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Advantages and disadvantages of GAP insurance

GAP insurance can offer a significant degree of protection in certain situations, but comes at an additional cost that shouldn't be ignored. If you are not obligated to purchase this policy, but you have the option, consider these advantages and disadvantages before making your decision.

Benefits Disadvantages
Less financial burden after an accident At a certain point, the difference between what you owe and the value of the car will decrease to the point that it might not be worth it
you will be able tobuy a new car (and better) without worries It's an extra expense which is added to the others related to your car
The price of GAP insurance it is relatively low

Is it worth buying a GAP insurance policy?

The purchase of a GAP insurance policy is only valid if you have financed your car with a low down payment, if your loan is long-term or if the car you use is rented. In these cases, it is a convenient way to protect yourself from the risk of being declared total loss or theft. Also, and it's something not everyone knows, If you paid for GAP insurance upfront and sell the vehicle before paying off the loan, you are generally entitled to a refund for the part of the insurance you didn't use..

Alternatives to GAP insurance

GAP auto insurance isn't the only option that you need to protect yourself in case of theft or accident. Next, we leave you the alternatives you should consider.

Loan / rent repayment

Loan / rental yield differs from GAP insurance in a few key ways, although some insurers use the two terms interchangeably. For starters, the GAP is only available for new cars, while the loan / rent payment covers used cars.. In addition, the latter pays a certain percentage of the vehicle's value, often 25%, instead of the balance of your debt.

New car replacement insurance

Instead of taking out GAP insurance, you can extend your policy to cover the replacement of your new car. If the vehicle is less than a year old and has 15,000 miles, the insurance will pay the full replacement value. Also, a big advantage of this option is that, unlike the GAP, where you are only insured for the difference in value, and would still have to process a loan for a new vehicle and down payment, the replacement of the new vehicle means that you would continue to make payments as if nothing had happened.

If you want to discover other articles similar to What is GAP Insurance (Guaranteed Auto Protection Insurance)?, you can visit the Insurance category.

Nathan Hamilton

Nathan Hamilton

Nathan is a car enthusiast and industry professional with decades of combined experience in the automotive sector. Along with his team of writers and researchers, all passionate about automobiles, he is committed to delivering reliable and relevant content that ranges from detailed insurance guides to maintenance tips and much more.

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