Is GAP Insurance Worth the Extra Cost?

When purchasing a new or leased vehicle, many buyers are offered guaranteed asset protection (GAP) insurance. This optional coverage bridges the “gap” between what you owe on your car loan and the vehicle’s actual cash value (ACV) if it’s totaled or stolen. But is it worth the extra cost?

Benefits of GAP Insurance

GAP insurance can be a financial lifesaver in specific situations. New cars depreciate rapidly, often losing 20% or more of their value in the first year. If your car is totaled early in the loan term, your standard auto insurance may only cover the ACV, leaving you responsible for the remaining loan balance. GAP insurance can help cover that shortfall, potentially saving you thousands of dollars.

This coverage is especially valuable if any of the following statements are true for you:

• You made a small or no down payment.
• You have a long-term loan (60 months or more).
• You’re leasing the vehicle (many lease agreements require it).
• Your car depreciates faster than average.

However, GAP insurance may not be necessary for everyone. If you made a sizeable down payment, have a short-term loan or your car holds its value well, the risk of being “upside down” on your loan is lower. Additionally, some auto insurers and lenders include GAP coverage in their policies or offer it at a lower cost than dealerships.

Ultimately, the decision comes down to your financial situation and risk tolerance. If the thought of owing money on a totaled car is unsettling, GAP insurance can help. But if you’re in a strong equity position, it might be an unnecessary expense.

Learn More

GAP insurance is worth considering, especially for new or leased vehicles with low down payments. Compare costs and evaluate your loan terms before deciding. For GAP insurance near you, contact JSW Insurance.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.