What is Gap Insurance?
Gap insurance, or guaranteed asset protection insurance, is a type of coverage designed to protect vehicle owners in the event of a total loss. This situation often arises when a car is stolen or deemed a total loss due to an accident. Typically, your standard auto insurance policy will cover the current market value of the car at the time of loss, which might be significantly less than what you owe on the car loan.
The primary function of gap insurance is to bridge this financial gap. For instance, if your car's market value is $20,000 after an accident, but you still owe $25,000 on your loan, gap insurance will cover the remaining $5,000, ensuring you aren't left with debt for a vehicle you can no longer use.
This coverage is especially beneficial for those who have financed or leased their cars, as the depreciation of a vehicle often outpaces the rate at which you pay down the loan. Additionally, gap insurance is generally affordable and can be purchased through insurance providers or possibly included when leasing a vehicle.
It’s important to evaluate your specific needs and consult with your insurance agent to determine if gap insurance is a prudent investment for your situation. Ultimately, gap insurance can offer peace of mind, protecting you from unexpected financial burdens in the unfortunate event of a total loss.