What is GAP Insurance?
GAP insurance is an acronym for guaranteed asset protection insurance. To sum it up, GAP insurance is an optional add-on for a vehicle that covers the vehicle’s value between the amount you owe and the car’s actual cash value. If a car accident were to occur, the car’s actual cash value is the car’s monetary value at the time of the accident- not the car’s original price.
For example, pretend you were involved in an accident and your car is damaged beyond repair. If you still owe $20,000 on your auto loan, and your car’s actual cash value is $15,000, you would be relieved to have GAP insurance. GAP insurance would help you cover the $5,000 gap between what you owe on the loan and what your car is worth, after your deductible.
Is GAP Insurance right for you?
If you’re leasing or financing a car, GAP insurance could be worth it because cars tend to depreciate much faster than you pay off your loan. This means you could be underwater on your loan for a few years after you buy your vehicle. You want to make sure you’re covered just in case you get in an accident, and you’ll owe more than the car is worth.