What Does GAP Insurance Mean For Car Insurance?

By Mike Anderson Posted in Car Insurance News

What Is GAP Insurance

GAP insurance stands for Guaranteed Auto Protection. Usually, Guaranteed Auto Protection insurance is used to cover the difference between what your car is worth and how much you owe on your car. You may have a GAP policy included in your current insurance policy and not even know it. It comes standard on most higher-end insurance policies.

Why It Is Important

Not many people know about Guaranteed Auto Protection and what a vitally important part of any insurance policy it can be. Let’s look at what happens to a brand new car when it is purchased. The minute you drive your new car out of the car dealer’s lot it can automatically depreciate anywhere from 10% to 30% depending on the type of car. So a $20,000 car may only be worth $14,000 to $18,000 by the time you drive away in it. You still owe the brand-new price on the car even though the car is only worth a fraction of that. If you get into an accident pulling out of the dealer’s parking lot, then the insurance company will only pay the car’s current value, not what you owe.

How GAP Insurance Works

GAP insurance covers the difference in what you owe on the car and what the car’s actual value is. Without this insurance you could face a bank-breaking situation. If you are involved in an accident and you owe more than the car is worth, you could be left with no car and an outstanding balance on you car payment. Since insurance companies only pay out what the car is worth and not what you owe on the car. When you are shopping for insurance before you purchase a car, new or old, look for GAP insurance in your policy. If you do not have it in your policy, consider purchasing it. It could mean the difference between driving a car and being broke.

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