Gap Insurance: Why You Might Need It

So you just bought a brand new car, and two months later you total it in an accident. No worries right? You have full coverage insurance, so you assume you’re covered with and don’t expect any issues. Unfortunately that isn’t always the case. On average a car loses up to 30% of its value as soon as you drive off the lot. This can cause problems when you finance a vehicle.

For example:

You purchase a new car for $30,000 with no money down, and one month later you total the vehicle in an accident. Even though you have full coverage auto insurance, your auto insurance company might not provide enough coverage to cover what you owe on the vehicle. The insurance company looks at the market value of the vehicle, not how much you owe. So let’s assume at the time of the accident your car is only worth $27,000 and your auto insurance company only gives you that much. You are left with $3,000 to pay out of pocket. Gap car insurance covers the difference and can save you a lot of money if you are ever in this situation.

GAP stands for guaranteed auto protection, but the term also refers to the gap between how much a car is worth and how much is owed on it. Gap insurance coverage is not required, but you might want to consider purchasing it if you finance a vehicle with little money down that loses value quickly. Not all auto insurance companies offer gap insurance, but you should be able to purchase gap auto insurance through the car dealership where you purchase your vehicle.