Guaranteed Asset Protection Insurance
What Does Guaranteed Asset Protection Insurance Mean?
Guaranteed Asset Protection (GAP) Insurance provides coverage for the difference between the actual cash value of a car and the amount owed on the loan. If you have a loan on a car and it is stolen or declared a total loss due to a collision, fire, or any other covered peril, the insurer will pay the actual cash value of the vehicle. In some cases, the amount owed on the loan may exceed the actual cash value, and GAP insurance covers this difference.
GAP insurance is also known as Guaranteed Auto Protection (GAP).
Insuranceopedia Explains Guaranteed Asset Protection Insurance
Certain circumstances make obtaining GAP insurance a wise choice, especially for new vehicles. New cars depreciate rapidly, and long-term loans with low down payments have become more common in recent years. If you make a low down payment and have a loan term of 60 months or more, for the first few years, you will have paid off only a small portion of the vehicle’s value, leaving you with a significant amount still owed on the loan. Meanwhile, during these same early years, the car’s value will depreciate significantly, and its actual cash value may fall below what you owe on the loan.
In general, GAP insurance may be appropriate if you make a down payment of less than 20%, finance the vehicle for 60 months or more, or roll over a loan from a trade-in vehicle when purchasing a new car. If you lease a vehicle, GAP insurance is often mandatory. In some states, dealers must offer you GAP insurance, but you can also obtain it from independent brokers in any state.
