Mastering the Gap: Gap Insurance 101
Mastering the Gap: Gap Insurance 101
When it comes to financing a new or used car, understanding the significance of Gap Insurance can be a game-changer. Some may overlook this coverage, dismissing it as just another add-on, but comprehending what gap insurance entails and what it covers is crucial. The burning questions arise – Is gap insurance worth the investment? Do I truly need it? Let’s dive into the fundamental insights we always share with our customers, emphasizing that the decision on gap insurance is one they’ll remember if the need arises. Let jump into Mastering the Gap: Gap Insurance 101.
What is GAP Insurance?
Gap insurance, an acronym for Guaranteed Asset Protection, is sometimes referred to as loan/lease payoff insurance. Its primary role comes into play due to depreciation, a significant factor, especially for newly financed or leased vehicles. In the unfortunate event of your car being declared a total loss within the initial years, the amount owed to the bank might surpass the vehicle’s current market value. Gap insurance steps in to bridge this gap.
What Does Gap Insurance Cover that Regular Auto Insurance Doesn’t?
In the aftermath of a total loss, your auto insurer will settle the claim, subtracting your deductible, allowing you to replace your vehicle. Sounds good, right? The catch lies in the fact that the maximum payout from your insurer or lender is the actual cash value (ACV) of your vehicle at the time of the loss. For a newer car financed within the first five years, the financial “gap” could be more substantial than anticipated. Without gap insurance, you’d be left responsible for covering the remainder of the loan balance. This is precisely where gap insurance proves its worth – covering the disparity between the insurer’s payout (the ACV) and the outstanding balance of your auto loan.
Is Gap Insurance Worth It?
Absolutely! The moment you drive your car off the lot, its value starts depreciating. Particularly for new cars, the most significant depreciation occurs in the first five years of ownership. According to Edmunds.com, at the end of five years, the average vehicle retains only 37 percent of its original value. While this figure may vary across makes and models, it underscores the importance of gap insurance.
Who Should Have Gap Insurance?
Beyond monthly payments, insurance, and vehicle depreciation are among the most substantial costs of owning a car. If you’re in the process of buying or leasing a new or late-model pre-owned vehicle, gap insurance is a prudent choice. Whether your car faces theft, vandalism, or is totaled in an accident, gap insurance provides invaluable peace of mind.
How Much is Gap Insurance?
The cost of gap insurance is relatively affordable, averaging less than $10 per month, depending on the loan term and interest rate. At Auto House, we extend the option of gap insurance to all our clients purchasing a new or pre-owned vehicle, regardless of financing through us. Additionally, you can add gap insurance within 30 days of your initial sale.
In conclusion, if you’re financing your car, gap insurance offers a valuable safety net and future peace of mind. For cash buyers, it might not be a necessity. At Auto House, our focus is on delivering exceptional cars at exceptional prices, with no pressure and no upsells. That’s the Auto House way.