Insurance premiums are a huge expense for every car owner. You might feel like you already pay too much for insurance, and that you’d rather not apply for yet another insurance plan. But if you spring for Guaranteed Asset Protection (GAP) coverage, and you end up needing it, you’ll be glad that you did.
What GAP insurance does
Let’s say you took out a loan to buy a used car. Then, someone crashes into you while you’re crossing an intersection, and your car is severely damaged. You take it to get repaired, and you find out that the cost of fixing your car is greater than the value of the car itself. The mechanic tells you that your car is “totaled,” meaning that it’s not worth the money to fix it.
The bank isn’t going to forgive your loan just because your car was destroyed. You’ll still be expected to pay off whatever you borrowed to buy the car, plus interest. In short, you now owe more on your car loan than what your car is worth.
That’s where GAP insurance steps in. If you have a GAP coverage plan, the insurance company will step in to help you pay off your auto loan up to the depreciated value of your car. That can be a tremendous help when you’re dealing with the cost of getting a new car, plus any medical bills you might have from the crash.
The great thing about GAP insurance is that it doesn’t just apply to crashes. It will help you to pay off your car loan even if your car gets stolen.
How much does GAP insurance typically cost?
The amount you’ll pay each year for GAP coverage depends on who you buy it from. You could get it from the dealership, from a lender or from some other source.
If you purchase a GAP policy from the dealership, they will add its cost to your loan, meaning you’ll have to pay interest on it each year.
If you get it from a lender, the price could range anywhere from $20 a year to $500 a year or more. That’s why it’s best to spend some time shopping around before you sign any contracts, so that you can make sure that you get the best price possible.
Hopefully, you’ll never need your GAP insurance coverage. But if you do end up needing it someday, you will be so glad that you have it.