A new vehicle depreciates, or loses value, as soon as it’s driven off the dealer’s lot. A driver’s loan balance typically goes down at a much slower pace than the car’s value. That means that in the first years after a new car is purchased, the amount owed on the loan may be significantly higher than the vehicle’s value.
When you owe more on your car than it’s worth, you are considered “underwater.” If you’re in that situation and your car is totaled in an accident, the insurance company’s payment will be less than the amount owed on the loan. You will have to cover the difference. That’s where Guaranteed Asset Protection (GAP) insurance comes in.
How GAP Insurance Works
A car is “totaled” if the cost to fix it is greater than its value. State laws and insurance company guidelines vary on the issue of when a vehicle is considered totaled.
Collision or comprehensive coverage will apply if your car is totaled, but the amount you get from an insurance company will be the car’s value at that time. GAP insurance will provide enough money to cover the difference between the insurance payout and the balance due on the loan so you won’t have to pay for a car that you can no longer use.
If your vehicle is totaled, the money that you receive from GAP insurance will have to be used to pay off the loan on the totaled vehicle. You won’t be able to use it to make a down payment on a new car.
How to Get GAP Insurance
To buy GAP insurance, you will generally have to be the vehicle’s original loan borrower or lessee. If you lease a vehicle, your contract may include GAP insurance coverage.
Car dealerships offer GAP insurance, but you don’t have to purchase coverage from a dealer. You may be able to buy a policy at a lower rate if you contact an insurance company directly. A carrier may only offer GAP insurance if your vehicle is no more than a few years old.
Get a Quote for GAP Insurance
No one wants to think about having a new car get totaled, but it can happen. If you find yourself in that situation and you owe more than your vehicle is worth, you will still have to pay off the loan. GAP insurance can offer you protection so you won’t have to figure out how to come up with thousands of dollars to pay off a loan on a vehicle you can’t drive, plus make a down payment on another car.
Petruzelo Insurance helps vehicle owners across CT find the coverage they need at affordable rates. We can get quotes from several top insurers so you can compare a range of options. Working with us can spare you the time and hassle of filling out multiple forms or speaking with representatives from several companies. Contact us today to get started.