It’s no secret that as soon as you drive a new car off the lot, it instantly begins depreciating in value. An auto depreciates the most in the first few years after it leaves the lot. For most consumers, this is not a major concern because they do not plan to sell their vehicle in the near future; but what if the vehicle was in an accident shortly after it was purchased and the insurance company deemed it a total loss? GAP insurance may help in these situations.

What is Guaranteed Asset Protection (GAP) Insurance?

Auto insurance typically reimburses the owner for the fair market value of the vehicle, but if the fair market value is less than the amount owed against the vehicle, the owner may have to pay the remainder of the auto loan out of pocket. If the insurance company deems the vehicle to be a total loss, and it is worth less than you owe, GAP insurance may cover the difference between the fair market value and the amount owed on the vehicle.

Auto GAP Insurance for Leased Car

GAP insurance is particularly useful when leasing a car. Sometimes, a lease contract may include GAP coverage, but if it does not, you should consider adding this to your existing policy. When leasing a car, GAP coverage is designed to cover the gap between what you owe on your car and its actual cash value.

As the auto loan or lease is paid down, the remaining balance may reach the fair market value of the vehicle, eliminating the need for GAP insurance. Be sure to consult with your insurance broker to evaluate your need for GAP coverage.

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