That said, GAP insurance is incredibly useful, regardless of whether or not you find it interesting. In fact, the decision to purchase GAP insurance might be one of the smartest decisions to make when purchasing a new car.
After all, accidents are somewhat inevitable—especially if you’re raising teenagers. Experience has taught me that it’s better to be prepared than it is to trust your luck (or the dealer from whom you’re purchasing your vehicle) and hope everything works out.
Now, for those of you who have been operating under the assumption that GAP insurance is part of your dental payment plan, allow me to explain: GAP insurance (also known as Guaranteed Auto Protection or Guaranteed Asset Protection) is a policy that covers the difference between the actual cash value of the vehicle and the balance you still owe. This comes in handy if you (or those rambunctious teenagers you’re trying to raise) happen to crash that brand new car you just bought.
Here’s an example—say you purchase a car for $15,000 (with a down-payment of $2,000). You’re leaving the dealer’s lot when you’re gripped by a sudden and ferocious fit of sneezing that causes you to lose control of your car and crash headfirst into a minivan packed with teenagers.
Now, normally, you’d be in pretty hot water. After all, the value of a vehicle depreciates the minute you drive it off the lot—sometimes by as much as 25-30%. This means that, even in a world where your new car isn’t a mangled piece of garbage, you still wouldn’t be able to sell it for much more than $12,000.
Let’s say, for the purposes of this example, that the minivan does $5,000 worth of damage to your new car. Your “brand-new vehicle” is now worth $7,000. This is a huge problem, since you still owe the dealer $13,000. Where are you supposed to get that extra $6,000?
Luckily, you’re an intelligent, forward-thinking individual who researches automobile insurance so, naturally, you chose to pay a little bit extra to purchase GAP insurance. While it’s pretty unfortunate that you functionally paid someone $2,000 to crash a car, the situation could have been worse. If you hadn’t purchased GAP insurance, you’d be out $8,000 (as opposed to $2,000).
As you’ve probably already realized, GAP insurance is more of a debt cancellation agreement than an actual insurance policy. That said, it’s worth investing in—especially if you just bought a new car. It’s easy to find, relatively cheap and it can save you major headaches in the long run.
So prove you don’t have a gap where your brain should be! Purchase GAP insurance!
Erin Patrick is a car enthusiast and has been associated with the automobile finance industry for nearly 10 years. She enjoys writing on the subject and helping consumers and businesses alike find the best car financing available.