What Is GAP Coverage and How Does It Protect My Vehicle?


What is GAP coverage, you ask? Guaranteed Asset Protection (GAP) can help bridge the gap between what you owe on your vehicle and its worth at the time of an accident or theft.

If your vehicle is declared a total loss due to an accident or theft, most auto insurance policies will cover it for up to the fair market value. But, what if you owe more than that to your lender or your lease financing company? That is when GAP coverage would be a huge benefit.

For example, let's say you bought a new car for $20,000. You made a $2,000 down payment, so you financed $18,000. A couple of months later, you get into an accident. Thank goodness, no one was hurt—but your car is totaled. Now, your car is valued by your insurance company at only $15,000. In those two months, you've made two car payments of $450 each—and you haven't made much of a dent in your principal. Now, you owe a lot of money on a car that doesn't exist anymore. That's where GAP coverage would kick in, helping you to avoid paying out of pocket for a car that's been destroyed.

Is GAP Coverage for You?

First, check if your lease already contains GAP coverage or if it is required by the financing company. If the answer is no to both then you may want to considering purchasing it for your vehicle.

When you lease a car, you're basically renting it for an extended period of time with the option to return it or buy it once the lease term has completed. If the car is totaled in an accident, you still likely will be held responsible for replacing it. The collision coverage of your auto insurance policy will pay for your car up to its value—but you will likely need to pay the rest of what you owe on your lease. The good news: Most leases include a GAP waiver, which will cover you for this amount.

You may also want to consider GAP coverage if you buy a car. Don't forget, cars usually decrease in value the moment you drive them off the lot. If you purchased your new/used car for little money down, GAP can protect you if your car is declared a total loss due to an accident or theft. So, how do you get GAP coverage? Often, when you purchase or lease a car from a dealership, you may have the option of buying GAP coverage for just such a scenario.

If you want to determine if you need GAP coverage, your first step should be to find out what the value of your car is, then compare that to the amount of money you still owe on your car loan or lease. If the difference is negligible, or something that you have the means to pay for out of your savings, you may choose not to buy GAP coverage. But, for your own peace of mind, it may still be something you want to consider. On the other hand, if the numbers you see are much farther apart, meaning you would have a hard time paying the difference, securing GAP coverage may be a smart choice.