Guide to GAP Insurance

GAP insurance is short for Guaranteed Automobile Protection, and is a type of car insurance that may be required by a dealership that you are purchasing from. It is meant to insure the value of the vehicle loan against loss so that the dealership will receive full payment for the vehicle despite it being totaled or losing value through depreciation. For the car owner, it prevents liability for a vehicle that has been totaled, where you are required to pay off the vehicle loan even though the car is gone.

GAP insurance is not expensive, and it does serve a specific purpose in auto insurance. If you owe more for your car than the current book value, then GAP insurance is worth considering. GAP does not replace other insurance coverage, but only pays the difference between the loan amount and the amount paid by the insurance company when the vehicle is lost or destroyed. In most cases, the coverage is set up to pay out directly to the lender, omitting the car owner completely from the claim.

The reason GAP insurance is required by dealerships and lenders is to protect their investment. If you are making payments on the car, and it is totaled out, the insurance company will only pay the cost of the vehicle minus depreciation, which usually means hundreds or even thousands of dollars less than the amount owed. GAP insurance allows the lender to recoup the amount of the investment completely so that they are not penalized by the theft of the vehicle. For the car owner, GAP insurance won't pay anything, but it will prevent becoming suddenly in debt for two vehicles and only having one that can be driven.

The cost of your GAP coverage will depend on such things as your previous driving history, and people who have had a few accidents will pay much higher GAP premiums than those who are considered safe drivers. Where ordinary car insurance is concerned with your credit score, marital status, and other factors, GAP insurance is very straight-forward and relies on your personal driving history and the value of the vehicle being insured as the primary factors. The insured risk for the insurance company decreases as more of the vehicle is paid off, and GAP coverage will have a lesser impact on your car insurance premiums as a result.