So you are at the car dealer about to buy the ride of your life and the dealer tells you that you need gap insurance. What is gap insurance? Is it a scam? Is it real? Do I need it for my car? Do I need to purchase gap insurance through the dealer? Can I purchase gap insurance through my insurance agency? We can help answer these questions.
Most car owners assume that if they were in a bad accident and their car was totaled, their car insurance would cover the amount that they paid for the car or the amount that they owe the bank for the car. This is not true. Most auto insurance policies only cover the market value of the vehicle, so if you have extra interest that you owe the bank on top of that value, you still have to pay that amount back to the bank out of your own pocket.
GAP stands for Guaranteed Asset Protection, and is an optional coverage that helps cover the amount financed, regardless if it is in excess of the value of the vehicle (IE if the owner is “upside down”, or “underwater”.)
Do I need Gap Insurance? Can I get it?
New vehicle financing: If you put a small amount down on your new car, or have a loan more than 3 years in term, Gap Insurance is probably a good idea for you. Vehicles generally depreciate in value faster than loans are paid down, so it can protect you financially in the event of a total loss.
Used vehicles: Gap Insurance is usually not available for used cars, so your best bet is to put a good down payment and take a shorter financing period in order to protect yourself.
Leased vehicles: Gap Insurance is essential for leased vehicles because if you total the car in an accident, you will owe the dealer the total balance of your lease.
To learn more about Gap Insurance, download this flyer, or call ERM Insurance at (949) 222-0444