A Closer Look at GAP Insurance, Part Two

Posted on Jan 12th, 05:57 pm, under Improve Your Auto Insurance Rate

We conclude our inside look at guaranteed auto protection (GAP insurance) this week. (If you missed our first article, you can read it here)

There are three general variants of GAP coverage:

The first is GAP insurance. You can only get this from licensed insurance agents and companies, though not all will offer them. Conversely, many other companies offer GAP insurance even if your auto policy is with another firm. If you want to get GAP insurance directly, check here)

Next, we have GAP waivers. This is essentially an agreement that you make with your dealer or lender to waive the difference between your actual car value (ACV) and your loan balance, should you lose the vehicle in an accident. Do note that this does not replace an actual insurance policy, and you still need one to back up your GAP waiver. You'll also have to pay interest on your GAP waiver if you add it to your auto loan.

Finally, there are GAP endorsements. This simply refers to an additional amendment or rider that is appended to your insurance coverage if your primary auto insurance policy doesn't yet cover the aforementioned gap. (Some insurance firms offer a similar-looking feature called loan/lease payoff coverage. Be aware that this will only pay out a fixed percentage of your ACV, and it is not equivalent to GAP coverage).

As we mentioned before, you should look into purchasing GAP coverage as soon as you buy a car. It's still possible for you to buy GAP coverage up to 12 months later, but sooner is always better. It's usually available on most new, used, and refinanced vehicles, but it can't be transferred to another car, loan, or person.

However, you won't be able to avail of GAP coverage on a loan of over $100,000, one with an annual percentage rate (APR) of over 12.5 percent, or one with a balloon payment. You also won't be able to get GAP coverage for vehicles you plan to use commercially, or those bought with a credit line or mortgage loan.

What you actually end up paying for GAP insurance depends on several variables. Unless you cancel it, your GAP coverage will last for the duration of the entire loan. 

When buying this form of coverage, watch out for dealers who try to convince you to buy GAP insurance the moment you purchase your car -- make sure you do comparison-shopping first to get the best price. In addition, some dealers tell you to buy GAP coverage even when your primary insurance plan already has it, thereby making you pay extra for something you don't need.

Like all types of insurance, GAP coverage is a form of protection that you hope you'll never have to use. If your car is stolen or destroyed early in its lifetime, however, then GAP insurance could potentially save you thousands of dollars and a lot of anguish.