When it comes to auto insurance, there's a lot to consider. An often-overlooked aspect is guaranteed asset protection insurance, more commonly known as GAP insurance. This is a type of coverage that can save you from financial uncertainty in certain situations.
Let’s explore what GAP insurance is, so that you can make an informed decision about whether you need it or not.
What is GAP Insurance?
GAP insurance primarily helps cover the difference (aka “GAP") between what your car is worth and what you owe on your auto loan. It can come in handy if your car gets stolen or totaled, as it will protect you from being financially responsible for the remaining balance on your loan after your primary insurance pays out.
When to Consider Getting GAP Insurance
GAP insurance isn’t required – it’s an optional add-on coverage. In some situations, it doesn’t make sense to get GAP insurance. For example, if you own a vehicle outright or owe less on it than its current cash value, GAP insurance won’t do you much good.
Here are five reasons you may want to consider GAP insurance:
- You Purchased a Car
If you're buying a brand-new vehicle, consider getting GAP insurance. Most cars depreciate as soon as they leave the dealership. So, the gap between the loan amount and the car's value can be significant early on. GAP insurance ensures that even if your new car gets totaled, you won't be left with a hefty loan balance to repay. - You are Leasing a Vehicle
Leasing a car also warrants serious consideration of GAP insurance. Most lease agreements require you to carry this coverage due to the high depreciation rates of leased vehicles. In the event of an accident, GAP insurance will protect you from potentially owing substantial sums to the leasing company. - You Are Financing a Used Car
Used car loans can sometimes have higher interest rates, meaning it takes longer to pay them off. Additionally, used cars may already have initial depreciation, making the gap between the loan value and the actual value wider. To safeguard against negative equity, purchasing GAP insurance is a must. - You Have a Long Loan Term or Small Down Payment
The length of your loan term and the amount of your down payment can also determine whether you should get GAP insurance. If you have a long loan term or a small down payment, you are more likely to experience a significant gap between the car's value and the loan amount. In such cases, GAP insurance can offer you peace of mind. - You’re a High-Risk Driver
If you have a history of accidents, traffic violations, or poor credit score, you're considered a high-risk driver. High-risk drivers often face more expensive auto insurance premiums. In this case, adding GAP insurance may slightly increase your overall insurance cost, but it can be a wise investment to protect yourself financially in case of an accident.
Final Thoughts
GAP insurance serves as an essential safety net, especially in specific circumstances. Buying a new car, leasing a vehicle, financing a used car, having a longer loan term, making a smaller down payment, or being a high-risk driver are all situations that can increase the likelihood of a significant gap between the car's value and the loan amount.
Assess your individual situation carefully, consult with an insurance agent, and make an informed decision about whether GAP insurance is necessary for you. Remember, it's better to have it and not need it than to need it and not have it.
Get GAP Insurance with TwinStar
If you’re thinking about GAP insurance, we’re here to help! Our team of friendly, local experts can help you get the coverage that best fits your needs and budget.
Check out our GAP insurance page for more information.
If you want to add GAP insurance to your auto loan, please contact us at 1.800.258.3115 or stop by your local branch.