Whether you like it or not, the value of your vehicle depreciates over time. If you’re unlucky enough and it gets totalled in an accident, your insurer will only pay its actual value. And that amount could be less than what you owe on a loan or lease. At this point, you could be in trouble. But you don’t need to worry if you have guaranteed auto protection.
What is GAP insurance?
Most drivers believe that, if their cars are stolen or totalled in an accident, their comprehensive and collision insurance will cover all the costs. But this is not true. Comprehensive and collision insurance only covers the car’s current fair market value. It’s guaranteed auto protection, or GAP, that pays for the difference between the vehicle’s actual cash value and the amount owed on it.
Do you need guaranteed auto protection?
You might be tempted to think that you don’t need it. You just bought your brand new car. It will be years until its value starts to drop, right? Wrong! According to some studies, the value of your car depreciates by more than 10% the minute you drive it off the lot. That’s a lot. And that value continues to drop by 15 to 25% each year. So, if your new and expensive car is totalled in an accident just one year after you bought it, you’re not only going to lose it, but a lot of money as well. GAP insurance can save you from paying thousands of dollars out of your own pocket.
Although you won’t be forced to buy this type of coverage, guaranteed auto protection is often required as part of a lease contract. But be aware that, in many cases, you can get GAP insurance only if you hold comprehensive and collision coverage as well. Lenders may set varying prices for this product. So it’s better to ask your insurance agent about it before signing anything.