GAP coverage is an additional coverage that you can add to your auto policy. A lot of people don’t know about it, but it should be noted that this coverage isn’t for everyone. We didn’t include it in our previous blog post about the optional coverages you must have because not everyone needs it. We’ll discuss who needs this coverage and how it can be beneficial.
GAP coverage is only for people who have a loan or lease on their vehicle. The purpose of this coverage is to compensate for the difference between what is owed on the car, and what the auto is actually worth at the time of a covered total loss. For example, you purchase a new car for $30,000. After a year you have paid off $2,000, but also after a year and many miles, the vehicle is now only valued at $24,000. There is now a difference between what you owe on the car ($28,000) and the value of the car ($24,000). If there was a covered total loss accident, then GAP coverage would cover the $4,000.
Surprisingly, this coverage doesn’t cost much if you add it to your personal auto policy. It’s also generally required by the loan or lease company, but they also have their own type of GAP coverage as well. We’ve heard different stories and numbers regarding the cost of coverage through the loan company ranging from $500 to almost $1,000 for the life of the loan. Adding GAP coverage to your auto insurance usually has a cost of $20-$50 per year. If you have a three year loan, that’s less than $150 total on average.
Overall, it’s smart to consider your options when you take out a loan or lease for a vehicle. You’re already being charged extra for so many things, so make sure you don’t pay too much for loan/lease coverage. Please contact us with any questions, or to quote adding GAP coverage to your policy.