How Does GAP Insurance Work?

GAP Insurance or Guaranteed Auto Protection insurance is an insurance policy in place to cover the difference between the cash value of the vehicle at the time it was declared a complete loss, and the loan value of the vehicle. GAP insurance policy requires that the vehicle is covered through standard vehicle insurance.

 

The Guaranteed Auto Protection plan is colloquially called as the "totalled insurance". The reason behind this is that the only way you would get benefits from the GAP insurance is when your vehicle is declared a total loss. This is when the vehicle is declared a total wreck or the vehicle is verified for theft. The verification is usually done by an independent third party appraiser.

 

The function of the Guaranteed Auto Protection is to cover the potential losses of an owner of a vehicle in the event that the vehicle is declared a total loss and the vehicle is in negative equity. The GAP insurer would cover the remaining balance, excluding the outstanding balance, after the Vehicle insurance policy has covered for the cash value of the vehicle. In some cases, the GAP insurance also covers the insurance deductibles.

 

The Guaranteed Auto Protection insurance is pretty much like its acronym, "GAP". It bridges the gap between the book price and loan amount.

 

The concept is quite simple. Having a high interest rate makes your loan amount significantly more than what your vehicle is actually worth. Hence, if you lose your vehicle to an accident or theft, the vehicle insurance only covers the actual cash value of your vehicle. GAP insurance covers the difference between what your vehicle is actually worth and what you owe to your lender. The bigger the difference, the more it makes sense to get GAP insurance on your vehicle.

 

GAP Insurance FAQ

 

Will GAP Insurance cover the whole cost if there is no auto insurance in place?

 

No. The GAP Insurance requires active auto insurance or else the policy would not take effect.

 

Will GAP Insurance cover the loan payables during a period when the vehicle is being investigated for theft?

 

No. Any loan payables should be met even when the vehicle is suspected stolen. It process for verifying theft usually takes a month or even longer if the Insurance Company encounters red flags. Until it is verified that the vehicle is stolen, loan and insurance payables would still be applicable.

 

Is GAP insurance mandatory?

 

GAP insurance is not mandated by the government in most states, but some lending institutions require the GAP insurance as a condition to obtaining a loan.

 

The GAP insurance provides you with a great way to minimize risks when purchasing a vehicle. Still, it's best if you talk to your insurance agent about the options that you have other deals that may save you a great deal of money in the future. Remember not to be pressured into buying GAP insurance, or any insurance for that matter, without reading the fine print. The details in the fine print can make a big difference.