Experiencing an auto theft or total loss is hard enough, what if it also meant having to pay the outstanding balance of your car loan on your own?
Most standard auto policies will only cover the depreciated value of the car or its current market value at the time of your claim. Since cars begin to lose their value the moment you drive them off the lot, what’s covered by insurance will generally always be less than the amount you financed.
This is where GAP insurance, or guaranteed asset protection, comes in.
What Is GAP Insurance and What Does It Cover?
“This optional endorsement will provide coverage for the difference between the actual cash value of your vehicle at the time of loss and any greater amount you may be legally obligated to pay to the financial institution,” explains Jodi DeSantis, Managing Director of Insurance Sales for AAA Northeast. In other words, it covers the “gap” between the two.
It is especially important to consider now when car prices are soaring. The average price of new and used cars reached all-time highs in 2021 and is expected to continue through 2022.
Getting coverage is easy. “Your car dealer may offer to sell you GAP insurance on your new vehicle. However, most car insurers also offer it, and they typically charge less than the dealer,” according to the Insurance Information Institute. “On most auto insurance policies, including GAP insurance with collision and comprehensive coverage adds only about $20 a year to the annual premium.”
GAP protection is often required on a leased vehicle. It is also recommended if:
- Your down payment was less than 20%.
- You financed for 60+ months.
- You purchased a car or truck that depreciates faster than average.
- Negative equity from an old car is rolled into your new loan.
“Some carriers do limit or cap the coverage to a percentage of the actual cash value of the vehicle, so it is important to discuss and understand the details of this coverage as well as the cost with your insurance agent,” said DeSantis.
Other Types of Loan Debt Protection
GAP isn’t the only way for borrowers to get peace of mind when taking out a personal loan. Unexpected changes in life can become even more stressful when you’re thinking about how to settle outstanding loans. Debt protection programs can provide some financial security against unforeseen circumstances.
Loss of life coverage can protect a co-borrower if the primary borrower dies during the life of a loan. Disability coverage can help cover payments if the borrower is injured or sick and unable to work during the life of a loan. And if a borrower loses their job during the life of a loan, job loss protection can help.
Learn more about AAA debt protection programs.
Finding that your auto settlement is not going to cover the full value of what you owe on your vehicle is not a surprise you want to encounter in the middle of a claim and shopping for a new car. GAP insurance could save you both the headache and out-of-pocket expense of paying off your loan.
Schedule an appointment with a AAA Insurance agent to find out more about GAP coverage.