Guaranteed Auto Protection – better known as Gap Insurance covers the difference between the actual cash value of a vehicle and the balance that is still owed on the loan or lease to the company the vehicle was financed with.

Typically, if a vehicle is damaged to such an extent as to be considered a total loss, without gap coverage, the insurance company will only pay the value of it as listed by a company like Kelly Blue Book or Edmunds. That means, if you owe more than that amount to the finance or leasing company, you will have to pay that amount.

So, should you always buy gap insurance? In our opinion at Eden Autos, it’s often a wise choice, especially for these situations: 

·      You are buying or leasing a new, or fairly new, car or truck

·      You bought a car that does not have great resale value

·      The car you are buying has features that make its value higher than normal

·      You are purchasing a vehicle with little or no down payment, making the amount financed (including taxes and fees) higher than the its actual value

·      You are financing the vehicle for a long term - 60 months or more

·      You don’t enough reserve cash to cover the difference if your vehicle is totaled or stolen

·      You expect to put a lot of miles on the car in a short period of time

So, as is the case with most insurance coverage, it comes down to the amount of risk you’re willing to take. If you feel comfortable not paying the added cost of gap coverage, are you in a position to handle the financial burden if something unforeseen happens to your car? According to Edmunds, the average loss in value of a one-year old car is about a 20-25 percent drop from its original purchase price.

Here’s an example of what could happen: You buy a car for its Blue Book value of $24,000. With taxes and fees, it comes to $26,500, and with a $1,000 down payment, you finance $25,500 and get insurance coverage with a $500 deductible. A year later, your car is totaled and you file a claim with your insurance company, only to find out the value of your car is only$19,200. And after your deductible, the insurance company will only pay your finance company $18,700. But you still owe $23,500 on the car, so are left with a gap of $4,800.

If you had gap insurance that also covered your deductible, the entire amount owed, $23,500 in this case, would be paid off. Without the gap insurance, you would be paying for that difference out of your own pocket, for a car you no longer owned.

A word of caution: many car owners think gap insurance covers more than it does. Here is a list of things it does NOT COVER:

·      Car payments in case of financial hardships

·      Vehicle repairs

·      Paying off loan balance if vehicle is repossessed

·      A down payment for a new vehicle

·      Extended warranties you may have add to your car loan

So, in our opinion, here’s the bottom line: it is usually a worthwhile outlay for anyone with a vehicle loan or lease who would be in financial trouble if they totaled the vehicle and were unable to pay off their loan or lease.