GAP Insurance, which stands for Guaranteed Asset Protection, is a form of car insurance coverage that provides coverage for the difference between how much you owe on your car, and how much it is worth, its ACV – actual cash value — at the time of the accident that causes the total loss. It is often required or included in your lease agreement if you lease a car, so it is important to go over your agreement with the leasing company to see if you have GAP insurance. Even if you do not lease a car, GAP insurance can be crucial in providing coverage for what you owe on your vehicle in a number of scenarios. For example, let’s say you purchase a new car for $25,000 and unfortunately the car gets totaled in an accident when you still owe $20,000. The at fault insurance company pays you the ACV of the car, which they value at $18,000. Gap insurance will cover the remaining 2,000 that you owe on the vehicle. Cars depreciate in value quickly and GAP insurance can be especially helpful in instances when you have a long-term loan agreement, and/or little down payment was put towards your vehicle. Being “upside down” on your vehicle, when the outstanding loan is greater than the value of the car, is an unfortunate scenario many clients find themselves in after their car is totaled in an accident. GAP insurance would be crucial in providing coverage for paying what is owed on the car. Depending on your finance agreement, you could be paying a balance on a car that you no longer use while paying or trying to finance another vehicle in the event of an accident. In order to avoid this unfortunate scenario, GAP insurance coverage can be purchased to protect individuals from finding themselves in the above scenario.
