IS GAP INSURANCE?
Guaranteed Auto Protection – better known as Gap Insurance
covers the difference between the actual cash value of a vehicle and the
balance that is still owed on the loan or lease to the company the vehicle was
Typically, if a vehicle is damaged to such an extent as to
be considered a total loss, without gap coverage, the insurance company will
only pay the value of it as listed by a company like Kelly
Blue Book or Edmunds. That
means, if you owe more than that amount to the finance or leasing company, you will
have to pay that amount.
So, should you always buy gap insurance? In our opinion at Eden Autos, it’s
often a wise choice, especially for these situations:
are buying or leasing a new, or fairly new, car or truck
bought a car that does not have great resale value
car you are buying has features that make its value higher than normal
are purchasing a vehicle with little or no down payment, making the amount
financed (including taxes and fees) higher than the its actual value
are financing the vehicle for a long term - 60 months or more
don’t enough reserve cash to cover the difference if your vehicle is totaled or
expect to put a lot of miles on the car in a short period of time
So, as is the case with most insurance coverage, it comes
down to the amount of risk you’re willing to take. If you feel comfortable not
paying the added cost of gap coverage, are you in a position to handle the
financial burden if something unforeseen happens to your car? According to Edmunds, the
average loss in value of a one-year old car is about a 20-25 percent drop from
its original purchase price.
Here’s an example of what could happen: You buy a car for
its Blue Book value of $24,000. With taxes and fees, it comes to $26,500, and
with a $1,000 down payment, you finance $25,500 and get insurance coverage with
a $500 deductible. A year later, your car is totaled and you file a claim with
your insurance company, only to find out the value of your car is only$19,200.
And after your deductible, the insurance company will only pay your finance
company $18,700. But you still owe $23,500 on the car, so are left with a gap
If you had gap insurance that also covered your deductible,
the entire amount owed, $23,500 in this case, would be paid off. Without the
gap insurance, you would be paying for that difference out of your own pocket,
for a car you no longer owned.
A word of caution: many car owners think gap insurance
covers more than it does. Here is a list of things it does NOT COVER:
payments in case of financial hardships
off loan balance if vehicle is repossessed
· A down
payment for a new vehicle
warranties you may have add to your car loan
So, in our opinion, here’s the bottom line: it is usually a
worthwhile outlay for anyone with a vehicle loan or lease who would be in
financial trouble if they totaled the vehicle and were unable to pay off their
loan or lease.