What Is Guaranteed Auto Protection?
GAP insurance or debt cancellation pays the difference between the value of your car and the loan balance you owe on your finance in the event that it is stolen or it is declared a total loss. Unfortunately, many drivers find out the hard way that their policy won’t be paying out enough money to actually cover a totaled vehicle. This means you could actually end up still making payments on something you no longer own. Debt cancellation is an optional policy that can help keep this from happening.
Here’s an example:
- Actual Cash Value: $12,500
- Amount You Owe: $15,000
- GAP Pays: $2,500
This is additional car insurance to your existing liability, collision and/or comprehensive coverage.
Those who have a lease contract or finance vehicles may be required to take out this protection as part of their contract. For everyone else, it is an auto insurance policy option. At Freeway, our trained agents can provide information to help you decide what you need.
How Much Does It Cost?
It depends on different factors, such as the market value of your vehicle and the amount of your loan. The maximum amount is 5% of your loan. So, if your loan is $30,000, the most your guaranteed auto protection should cost is $1,500 annually.
It’s worth noting that you’ll pay significantly more if you buy it from the car dealership or your finance company, rather than going through an insurer.
As always, shopping around to compare car insurance prices is advised.
Is Purchase of Guaranteed Auto Protection Insurance Right For Me?
One reason you should consider purchasing GAP insurance is that the value of your vehicle depreciates as soon as you drive it off the lot. So if you finance your ride and make a down payment of less than 20%, or perhaps no down payment at all, you may effectively have an “upside-down” loan where the principal of your loan is higher than its worth. If your ride should get stolen or declared a complete loss after an accident, then you’re on the hook for some serious financial consequences, fees and charges.
With this voluntary protection product, you can rest assured you won’t be stuck fulfilling your loan contract on a stolen or totaled car. Instead, you can easily pay off your lender and go about getting a new vehicle for yourself.
Some information to consider when deciding whether you need this protection include:
- If it is financed and new (or slightly used).
- You would not be able to pay off your loan balance in the event of a total loss.
- You are purchasing an expensive model that is a significant investment.
- You made a small down payment.
Also, keep in mind that if you drive a lot in a year, your vehicle will depreciate faster than normal. Guaranteed auto protection may be a good idea in that case.
How Does it Work?
It is only available for brand new vehicles or those less than one year old. You won’t be able to have this protection on an older automobile – even if you are financing it for more than its market value. It’s not designed to help you get into another vehicle or to replace the one you’ve lost. Its only to help you pay off your lender with the difference between what you owe and the actual cash value.
Some people confuse these policies with new car replacement coverage. This type (also only available for new) is a primary settlement to replace your vehicle in the event of a total loss with the same make and model – or something very close.
Do I Need It if I Have Full Coverage?
It depends on how new it is, and a few other considerations. In the worst-case scenario, if you are upside down on your loan (owe more than its worth) and it’s stolen, your comprehensive coverage will pay you for the actual cash value. Your GAP will pay whatever is still owed on your loan.
Who Doesn’t Need It?
In short, those who have sufficient collision protection and put enough of a down payment to match depreciation should be all right. In other words, if you owe less than what your car is worth, then you probably don’t need it. If you bought it outright or can buy another one out of pocket, you don’t need it.
Unlike liability insurance required by states, guaranteed auto protection is not a requirement.
What It Doesn’t Cover
This type of policy cannot be used for any type of repair or services since it is based on the assumption, your vehicle is a total loss. If it is a complete loss because a tree falls on it, your GAP would kick in. However, if a tree causes accidental damage but a repair is possible, it won’t cover that. Hopefully, you have comprehensive for that.
The same is true if you are in an accident. If your auto is a complete loss, your guaranteed auto protection would help pay off your balance owed. However, if it repairable, your collision coverage would be used for that.
It doesn’t cover any medical bills or other costs associated with a wreck. It also will not cover any auto deductibles you have, although your deductible coverage may be subtracted from the amount paid out. This depends on your policy.
How Can I Get It?
You cannot buy it unless you have the minimum coverage, which varies by state, plus comprehensive and collision. Many people refer to this as a full package. If your current auto insurance is full coverage, you can add it to your portfolio, usually by going to your carriers’ website. Typically, you can purchase it from the bank or financial institution that loaned you the money for your vehicle, the dealer or your insurer.
Get GAP Insurance for Your Vehicle Today!
Now you know more about what GAP is and how it works. Do you know where you can find the best auto policy with it?
Here at Freeway, we provide drivers with all of the automobile coverage they need. We can quickly and easily provide you with an online insurance quote or feel free to give us a call at 800-777-5620. Finally, you can also visit us at an office near you.