GAP Insurance: 10 Questions to Ask Before Buying Guaranteed Auto Protection Insurance

If you travel to London and ride the tube, you will invariably hear the friendly British- accented voice telling you to “mind the gap” every time you get off the train.  The gap she is referring to is one between the train and the platform that can catch the heel of your shoe as you are stepping off the train.  That kind of gap cannot be filled, so you have to be extra careful not to get caught in it.  The kind of gap for which they sell insurance is something that can be filled, so you can rest easy and not worry about it.

When you take out a loan for purchasing a car, you make payments every month.  Similar to purchasing a house, you will often wind up paying back a lot more than you originally borrowed due to interest on the loan and various fees rolled into it.  At the same time, the second you drive your new car off the lot, it has begun to lose value.  After a relatively short time, therefore, you are no longer making payments on a brand new $30K sedan, but on a used $25K vehicle on which you might still owe $28K!  This is called being upside down on your loan.

What happens if you have an accident and your car is totaled during this period of time?  Your collision coverage will pay you the cash value of your car, less your deductible. Or, the at-fault party’s property damage coverage will pay you the cash value.  For your car that is now worth $25K, suppose you get $24K from your insurer after your deductible is applied.  But you still owe $28K on it.  Will you have to mind the gap and cover the $4K difference yourself?  You will if you didn’t purchase GAP insurance. 

GAP stands for Guaranteed Auto Protection. Most people just use the term GAP to represent the gap in coverage between how much one owes on a car and how much the car is worth.

Here are some questions to ask yourself to determine if you should buy this type of coverage:

1. Are you purchasing a new vehicle?
2. Can you afford only a small down payment? (Less than 30% of the purchase price)
3. Are you borrowing money to buy the car?
4. Are you financing 70% or more of the purchase price?
5. Is your financing for 24 months or longer?
6. Do you drive over 12K miles a year?
7. Are you leasing a vehicle? (The upside-down nature of a typical car lease is even more common than a purchase situation, because the lessee usually has no trade-in and usually puts little or nothing down.)
8. Do you carry collision coverage on your policy? (Most GAP insurance providers require you to make a claim under your collision coverage in order for the GAP insurance to apply)
9. Can you afford to pay the difference between the value of the car and what you owe on it out of your own pocket?
10. Have you made sure that you don’t already have GAP insurance by calling your agent to see if it is included as part of your auto policy?

If your answer is yes to several of these questions, and no to number 9, then you might be a candidate for GAP insurance.  Talk to your agent and get some quotes to compare prices.  There are also many websites that allow you to purchase GAP insurance online.  Don’t simply buy GAP insurance from the dealer, since they always mark up the price significantly.  Do shop around and find the best deal.  Then you can relax and you won’t…mind the gap.