The Importance of Automobile GAP Insurance

Automobile Gap Insurance is an interesting development in the world of car insurance. This specific type of insurance came into being primarily because of the ever-rising costs of new cars.

In the early 1980s, car dealerships began offering "GAP" or "guaranteed asset protection" insurance as a way for consumers to ensure that should their car be totaled by an insurance company, they would have a means for covering the difference between the car's actual worth and what its current "fair market" value might be.

It is a well-known fact that cars lose their value as soon as they are driven off the lot, but many people aren't aware that a car can lose as much as 20 percent or more of its value immediately! When you still owe $20,000 on a car loan, but the insurance company says the totaled car is only worth $15,000, the company that you obtained your car loan through is not going to simply "write off" the $5,000 difference.

The following is an example of how Gap Insurance works:

You Purchase a new $20,000 vehicle.
Your vehicle is totaled 12 months later.

Your loan balance $17,000
Your Auto Insurance Company Settlement $14,000.00

Your Deductible - $500.00

Your auto insurance company's final settlement $13,500.00

Gap Insurance Pays $3,500.00

So Gap Insurance will cover the difference between the actual cash value of the car or what the insurance company will pay, and your remaining loan balance. Gap insurance will eliminate having to pay the difference (hundreds or even thousands of dollars) and possibly even save your credit history.

I have seen people who owed $5,000 and more on a car they didn't have anymore, because it was wrecked and their insurance company declared the car a total loss. The insurance company paid off the car leaving the owner owing $5,000 on the loan. They are then faced with having to pay the $5,000 or have their credit ruined.

Gap Insurance is absolutely essential to protect yourself if you are financing a vehicle. Get more information on Gap Insurance today.

Tony Iorio
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