Gap Insurance

GAP INSURANCE (GUARANTEED AUTO(OR ASSET) PROTECTION)

 

Gap insurance is an insurance product that is available from dealerships, as well as independent insurance companies. This is a product designed  to protect a car buyer from the liability of a deficiency in the event their car is declared a total loss by the insurance company.  To put it in simpler terms, if the vehicle is declared a total loss and you owe more than what the car is worth, it is your responsibility to cover the shortage owed to the finance institution. This can be thousands of dollars in some instances, and can leave you financially broken, or ruin your credit. To avoid ruining your credit, you will have to continue making payments on a car that you no longer own. This is a real threat to your finances, so you should take it seriously if you are planning to finance a vehicle, and you are already in a position of negative equity and rolling that in to the new loan. In doing so, you will be putting yourself further “under water”(financing more than what the vehicle is worth in the current marketplace), and this is never a good thing. This is easily avoidable by opting for gap insurance if the situation warrants so. There is absolutely no need for gap insurance if you are in strong equitable position. This is only a good choice if you are financing over the book value for the vehicle, and you really should be protecting yourself against future loss. True gap insurance is usually only available within a very short time of purchase(usually 30 days) and is mostly available on new cars only. There are certain manufacturers that will offer gap insurance on preowned(usually certified) cars but this in not true in all cases. The good news is that loan/lease payoff coverage is available anytime and can be purchased on used cars. The difference with this coverage is that true gap insurance covers 100% of the deficiency, and the loan/lease payoff coverage will cover a max percentage(usually 25%) of the vehicle value. In most cases it is unlikely that you owe 25% more than the current value of the vehicle unless you are in a really bad situation. This is still great coverage to help you offset the balance due in the event of a total loss and should not be overlooked. It is important to clarify what the coverage is with any of these products, and to understand any restrictions that may apply. Gap coverage is usually the most beneficial in the first few years, and you can always drop it at a certain point if there is no longer any benefit.

There are a couple of avenues you can take to get gap insurance or loan/lease coverage.

 

1. Independent (larger) insurance companies(my personal recommendation)

This is a great way to get competitive gap insurance for your vehicle and bypassing the middle man(in this case the dealer). Dealers will markup this coverage hundreds of dollars and make a profit on you. Save yourself some money and get a free online quote at one of my trusted partners. I recommend the larger well known insurance companies, because the threat of them going out of business and leaving you holding the bag is next to nothing. Keep in mind that some companies do not provide gap insurance in some states, and some only offer loan/lease payoff coverages. Check with each company individually to see what they offer in your state.

 

2.Dealer Finance Departments

This coverage will be offered to you also when you get in the “box” as it is known in dealerships. However, be aware that you are going to pay more unless you attempt to negotiate this also. I say attempt because depending on the finance manager you may get stonewalled in this area. This is one of the many profit sources for the finance department. Some of these managers take it very seriously, and do not discount their products(at least not right away) at all, or very little. You have to be prepared when you walk in that office, which is why I suggest getting quotes beforehand. If you know you are going to be “upside down” when you sign the papers and walk out of the office, you certainly should be getting gap insurance, but that does not mean you have to pay too much for it. If you do your due diligence you can keep the money in your pocket, and at the same time protect yourself from future losses.