GAP (“Guaranteed Auto Protection”) Insurance 
What Is It & Do You Need it?

So you bought a new car. You took out a loan, paid your down payment, and have faithfully paid your auto loan payments each month. Despite this, you still owe more on your loan than your car is actually worth because of how quickly automobiles depreciate in value (this is called being “upside down” or “underwater” on your loan). What happens if you get into a wreck and your collision coverage isn’t enough to even pay off your entire auto loan? This is where GAP coverage comes into play.

What is GAP Coverage?

GAP coverage is an optional add-on to your insurance policy that will help you pay off your auto loan in the event the vehicle is stolen or totaled in a covered collision. GAP coverage will cover the difference between the actual value of your vehicle and the amount owed on your auto loan, thereby covering the “GAP” between the actual value and the remaining loan amount.

How Does it Work?

Imagine that you purchase a vehicle for $50,000. You pay a 20% down payment and procure an auto loan for the remaining $40,000. After years of paying on-time, you get into a wreck. You still owe $20,000, but, due to depreciation, your insurance company only values your vehicle at $15,000. You still owe $5,000 on a totaled car. What can you do about the $5,000 difference between the loan amount and the depreciation value? GAP insurance can help cover that amount.

Do You Need GAP Coverage?

According to the Insurance Information Institute, when you drive a brand-new vehicle off the lot, its value immediately decreases. Actually, most vehicles lose 20% of their value within the first year. So, while GAP insurance isn’t required by law, it may be a good idea to add to your insurance policy. Additionally, some private lenders may require GAP insurance as a term of the original auto loan.

You might want to consider GAP coverage if:

• You made less than a 20 percent down payment on your vehicle.
• Your vehicle is financed for 60 months or longer.
• You leased your vehicle – where GAP coverage is generally required anyway.
• You purchased a vehicle that depreciates faster than average – many times these will be your luxury vehicles.
• You rolled over negative equity from an old loan to your new loan.

Is GAP Insurance Worth it?

GAP coverage may be, or may not be worth purchasing, depending on your unique situation. If you think you can afford to pay out of pocket to cover the market value and depreciation value difference, or if you owe less on your car than the car is actually worth, then GAP coverage may not be for you. However, if you owe more than your car is worth, or don’t think you can cover the value difference in the event your car is stolen or totaled, then it may be worth it.

Depending on your insurance company, your driving history, the value of your vehicle, etc., GAP insurance may be an affordable option to protect your property and pecuniary interests in the future.

You may also want to consider adding onto your GAP coverage, new car replacement coverage for help purchasing a new vehicle if yours is totaled.  Some insurers sell GAP coverage and new car replacement coverage together.

Helpful Links

To calculate your vehicle’s market value, try using Kelley Blue Book.

For more information on GAP insurance, check out Insurance Information Institute.

Ensuring that you have the correct insurance coverage is one of the most important things you can do to protect yourself and your property from unforeseen events like motor vehicle collisions. If you have been in a car wreck and have questions regarding your insurance coverage, please don’t hesitate to reach out to Attorney Bethany L. Schneider of Schneider Injury Law via email at Bethany@SchneiderInjuryAttorney.com, or call Bethany directly at (404) 800-3060.