What is GAP Insurance?
The Guaranteed Asset Protection is another type of Insurance Policy that is sold when one buys a new car. Although, for some people standard insurance policy provides enough protection to cover the cost of damages and repairs. However, in case of your car being stolen or written off, the standard insurance policy only covers the car’s actual cash value and not what you owe to the bank, thus creating a gap.
For example, if your vehicle cost you $25,000 and in the event of it being stolen within the first year of purchase, your standard insurance policy will only pay you $18,000 after deducting the depreciation of the vehicle. There will be a shortfall of $7,000 that you owe to the bank. This shortfall is covered by GAP Insurance Policy and the insurer will pay you the difference between the value of the car and the amount you actually paid for the car at the time of purchase.
Ideal Candidates for GAP Insurance
You do not need gap Insurance if you own the car outright and have a lot of equity in it. However, in some cases buying GAP Insurance is ideal for the people whose down payment for the finance deal is 20% or lower or they have bought a car that depreciates significantly. The people who are paying a lot of interest and over a large span of time should also go for GAP Insurance. Similarly, GAP Insurance should be bought if the structure of your finance agreement requires you to pay a huge sum at the end which is commonly known as a balloon payment.
Advantages of Guaranteed Asset Protection
GAP insurance helps you to averse the risk of being in negative equity and save huge amount of money in the case of the car being stolen or when the car is being written off. If you have financed your car through a bank or any financial institutions, you will be left for paying for the length of the contract for a car you no longer have. Thus, GAP Insurance will give you much needed peace against a low monthly cost and annual premium.
Disadvantages of GAP Insurance
The likelihood of the car being stolen and written off is very rare and therefore GAP Insurance policy is not much of a use unless there is a total loss of the car. Also, some of the GAP Insurer refuses to pay for the loss in case of a thief breaking into your house, and steals the car from your drive.
Is GAP Insurance Worth?
Now the question arises, is GAP Insurance really worth the annual premium? GAP Insurance no doubt secures you from the loss of money in case your car is stolen or written off. But, it is not suitable for those people who are the first registered owners of the car and their standard insurance policy already covers the replacement of the car during the first 12 months of ownership. Also, for those people, GAP is not worth who can afford to pay for the shortfall in the insurance payout. Thus, you need to access the suitability of GAP Insurance in your case and evaluate whether it is worth for you in the end or not.