If you’ve purchased a car at a dealer before, you’ve probably been offered GAP insurance — an acronym for guaranteed asset protection insurance. This insurance is usually offered to you in a dealership’s finance office when you’re buying a car, and it’s designed to add on to the insurance coverage you already have. So what is it? And is it worth it? We have a few answers that should give you a better idea of what GAP insurance is and whether or not you need it.
What Is GAP Insurance?
Simply put, GAP insurance is additional insurance on a vehicle that covers the vehicle’s value between the amount you owe and the amount the vehicle is worth.
That’s still a little wordy, though, so here’s an example that should help explain it: Say you buy a new car for $30,000, and you finance the entire amount over 60 months. A year later, you get into an accident and the car is totaled. In this case, the insurance company would pay out the car’s value — $20,000, for instance. Unfortunately, you probably still owe at least $24,000 on your loan — and possibly more. GAP insurance takes care of the $4,000 difference between what the insurance company pays for the car and what your loan is worth, to ensure you won’t lose any money in the event of an accident. Find a new car for sale near you
Should You Buy It?
Whether or not you should buy GAP insurance depends greatly on the way you pay for the vehicle.
If you pay with cash or make a large down payment (in excess of 20 percent), there’s no reason to buy GAP insurance. That’s because GAP insurance is only designed to cover you in situations where you owe more than the car is worth — and in these cases, you probably won’t.
However, if you finance the vehicle over a longer term (more than 48 months) or put only a small amount down, you should seriously consider GAP insurance. This is because cars tend to depreciate much faster than you pay off your loan, which means you will likely be underwater on your loan for a few years after you buy your vehicle. Should you get in an accident, you’ll owe your bank more than the car is worth — and that’s exactly what GAP insurance is for.
Where Can You Get It?
As you would do before purchasing any insurance policy, you should shop around before buying GAP coverage. While a dealership will offer you GAP insurance when you’re buying a car, you may want to call your regular insurance company first to see if you can get a better deal — or at least to get a quote, which can help you negotiate the cost of GAP insurance at the dealership.
Related Car Insurance Articles:
- 5 Steps for Choosing Auto Insurance
- Buying a Car: How Do You Add Insurance If You Buy Over the Weekend?
Editor’s Note: This article has been updated for accuracy since it was originally published.
Would the same recommendations apply on a LEASED vehicle?
I bought a used 2014 Silverado for $24,200 with zero down and financed it for 72 months. The GAP Insurance was $800 and covers up to 150% of the car value.GAP Insurance through my insurance…shelter….is $38 a year but only covers 125%. so the car dealer I think was a great ripoff.
I totaled my car I owed 10,000 the insurance gave me 9,000 the gap insurance payed me 150, then they told me if i canceled my gap they would give me another 100. so i still owed the bank 750. not worth it at all
Can you cancel your Gap insurance policy at any time? Do you get refunded for the remaining coverage?
I always heard if you lease the GAP is necessary. Plus I recently was told the GAP can not be transferred to another buyer which I feel is a RIP OFF! I purchased a vehicle and was told by the finance guy “you know you have a $45,000 vehicle and if you total the car, you will be on the hook for whatever your insurance does not cover”. I had the car 5 months car devalued $12,000 or more since. Cars do not hold their value at all. If any dealer tells you this car holds its value, laugh and walkout.
cAN YOU PURCHASE gap INSURANCE AFTER YOU HAVE PURCHASED THE VEHICLE? aN IS THERE A CUT-OFF DATE TO BUY GAP INSURANCE?
Yes, you can usually get GAP insurance via a credit union or bank, even after you bought the vehicle.
at least give us some examples of costs based on a good driving record, amount of loan, length of loan and $25, 000 vehicle
I just bought gap insurance from my credit union for a used car I purchased at 120% Loan to value. The loan was $24,000, car is worth $21,000 and the gap insurance was a one time fee of $499. Loan term is 84 months @ 4.9% interest. Hope this helps.