3 Ways GAP Insurance Can Help With Your Finances

Guaranteed asset protection or GAP insurance—sometimes called GAPS—is a lifesaver when a car or truck you’re still paying for suddenly gets stolen or wrecked. It makes an insurer cover the difference or ‘gap’ between the loan you took to finance the vehicle and how much it depreciated. 

In finance lingo, GAP insurance will cover the negative equity of your loan. Negative equity is basically the difference between your car’s Actual Cash Value (ACV) and the remaining amount you must pay for your loan.

To know more about how GAP insurance can be beneficial to your finances, continue reading:

1. Save You From Paying Out Of Your Pocket

Without GAP insurance, it’s typical for insurers only to cover the car’s current value. While that sounds good on paper, the problem is that the value of vehicles may depreciate. And this may put you in a disheartening situation where you’ll get an amount that’s not enough to cover the remaining loan you took for the stolen or totaled property.

As an aside, some car owners often don’t know if they have GAP insurance. So if the question, ‘How do I know if I have gap insurance?’ is boggling your mind right now, you may want to contact your auto insurer immediately, especially if you plan to buy a new vehicle.

If you got your car recently, it probably means you’re hundreds of dollars away from paying off your debt. Say that you’ve been paying for a while, and there’s still USD$30,000 left to pay. Then when the vehicle got wrecked or stolen, the same make and model of your vehicle can be sold at a depreciated price of USD$25,000—this is your car’s ACV.

With GAP insurance, the insurer will cover the difference or negative equity, which is USD$5,000. Combined with regular car insurance, GAP insurance will free you from worrying about payments for a property you can’t use anymore.

By the way, do note that GAP insurance doesn’t cover deductibles. Suppose that you have a deductible of USD$500 in your loan. GAP insurance may only cover the USD$4,500 difference.

2. Save Yourself From Additional Expenses The Alternatives May Incur

Know that other types of insurance can secure you against paying anything extra after suddenly having your loaned or leased vehicle totaled or stolen. These are new-car replacement and better-car replacement insurance. While the two offer more comprehensive coverage and have the added benefit of replacing your car, they’re often more expensive compared to GAP insurance.

Choosing GAP insurance is often a practical choice if you want your expenses to be as low as possible. In some cases, having one is often mandatory, as some lenders will require you to have one before they approve your car loan request.

Of course, you should consider deciding which type of policy you want for your newly acquired vehicle, especially if you’ll be driving your vehicle a lot and live in a location where car theft is prevalent. Lastly, you should also know that the cost of the premium for your GAP may vary depending on your age, state, ACV of the car you’ll get, and your auto insurance claims.

3. Give You Some Extra Cash If You Needed Through A Refund

Yes, refunding the money you paid for the GAP insurance is possible. Often, you can start the refund process or request by canceling this policy first.

However, you should know that some insurers may have specific requirements before you become qualified for a refund. For example, some insurers may need you to pay your GAP insurance. Also, you may need to cancel and request a refund before the policy expires. 

Aside from that, the amount you’ll get may vary depending on a few things, such as the current value of the car, the amount you loaned, the mileage of the vehicle, and the terms of your loan.

Of course, these conditions may differ from lender to lender. So, even before you get a car or as soon as possible, talk to your agent or provider about the refund process—so that you know what to do in case you’ll need money or deemed that the policy isn’t for you. Depending on your situation and insurer, you may consider GAPS a good investment option for your finances now.

Conclusion

Those are the three primary financial benefits of having GAP insurance for your car. As mentioned, it’s a lifesaver if the vehicle you’re still paying for suddenly gets wrecked or stolen. While you may focus on these benefits, you shouldn’t forget how this policy can give you the peace of mind you need, as you’ll never know when your car suddenly becomes undrivable or disappears.