What is Gap Insurance?
In addition to your own automobile insurance, you have the option of purchasing GAP insurance when you take out a loan for a vehicle. GAP stands for Guaranteed Asset Protection. GAP insurance may protect you in the event of an auto accident. This insurance pays the difference, or the “gap,” between the balance of a lease or loan due on a vehicle and what an insurance company pays if the car is considered a covered total loss.
What happens if I don’t have GAP insurance, and my car is totaled?
An insurance company will “total” your car when they determine the value of the car is less than the cost of the repair. That means that if it costs more to fix your car than it is worth, the insurance company will deem it totaled. The insurance company will determine the value of your car based on present value of the vehicle. The amount that you still owe on the vehicle is NOT a factor in determining the current value of the car. If you don’t have GAP insurance, you will be responsible for paying off the balance of the loan. If you DO have GAP insurance, it should pay the remaining balance of your loan.
Is there a difference between Payoff Protector and GAP insurance?
State Farm offers Payoff Protector, which is similar to GAP insurance. State Farm Bank offers it with every loan origination. If you finance your vehicle with this insurance company, you should receive Payoff Protector. If you do not have a State Farm Bank loan, don’t stress! You can typically obtain GAP insurance through your loan originator.
It is very important to remember that you are responsible for the balance of your loan if your car is totaled and you do not have GAP insurance. When you get a loan for a new or used vehicle, GAP insurance is usually offered at a minimal cost. We strongly recommend considering GAP insurance if you have a loan. Unfortunately, many people are shocked to learn they will have to pay the remainder of the loan when their car is totaled. Avoid this situation by electing to have GAP insurance on your vehicle. Once you pay the loan paid in full, you will no longer need to carry GAP insurance.
Is GAP insurance worth it?
GAP is not required. However, if you have an auto loan, GAP is absolutely worth considering. If you are in an accident, are you comfortable paying off your loan — even if that car, truck, or SUV is not drivable? If the insurance company totals your vehicle, will you be OK paying potentially thousands of dollars (the remaining loan balance) for a vehicle you no longer own?
Besides GAP insurance, what other insurance should I have?
Like GAP insurance, there are other types of insurance that can protect you in the event of an accident. GAP is just one of them. Other elective coverages include Uninsured/Underinsured Motorist coverage, Bodily Injury Liability, Comprehensive, Collision, and Medpay. Learn more about the various types of insurance available to you.