Do You Need GAP Insurance? Understanding Its Importance

Purchasing a new car can be exciting and enjoyable. But as you enjoy your new ride, you still need to be aware of various risks and exposures that could quickly ruin your excitement and impose significant financial ramifications. While certain dangers are inherent to operating any vehicle, newly purchased cars can be especially risky, as you may now carry a sizable auto loan with a high outstanding balance. In the event of a total loss (e.g., when repair costs exceed the car’s value), you might need particularly robust insurance, such as that provided by GAP (guaranteed asset protection) coverage.

Why Is GAP Coverage Important?

GAP coverage is a common and often critical component of personal auto insurance policies. Immediately after you drive your new car off the lot, it depreciates in value. In fact, according to the Insurance Information Institute, most vehicles lose 20% of their value within a year of being purchased. Under many standard auto policies, your vehicle will only be covered for its market value at the time of an incident. However, this depreciation may mean you owe more on your auto loan than you’ll receive for a total loss.

This is where GAP coverage can live up to its name by potentially bridging the difference between what you owe on a totaled vehicle and what standard auto coverage might provide in a payout. This means you’ll be better positioned to avoid significant out-of-pocket losses and more likely to be able to purchase another vehicle with fewer financial setbacks. Conversely, lacking GAP coverage could mean you’ll need to keep paying off the remaining balance on an auto loan for a car you don’t even have anymore.

Who Needs GAP Coverage?

Although GAP insurance may be an advisable investment for anyone with an auto loan, purchasing this coverage may be particularly important if one of the following applies to you:

• You put less than 20% down when initially purchasing your vehicle.
• Your loan is expected to take at least 5 years to pay off.
• Your vehicle generally depreciates in value more quickly than the average car.
• You’ve rolled over an amount from a previous auto loan into your new one.
• Additionally, if you’re leasing a vehicle, GAP coverage is typically required.

We’re Here to Help

Contact Bovard Insurance Group today to learn more about GAP coverage or get a personalized quote for an auto insurance policy that includes it.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.