If you have gone to a dealership to get your car and get it financed, then you were probably asked if you wanted GAP insurance to be part of your loan. Most car salesmen won’t be able to tell you what it is, and some might even tell you it’s a rip-off.
However, if you’re a fan of finance, you already know that things aren’t always that easy. GAP insurance is a real thing for good reason. So, what is GAP insurance, and why should buyers be getting it?
What is GAP insurance?
GAP stands for Guaranteed Auto Protection, and it’s a form of optional insurance that allows you to cover the difference between your car’s actual value and the amount that you owe on a car. GAP is the insurance that allows you to avoid having to pay off a loan if your car gets hit before you finish paying it, and gets declared a total loss.
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Why should I get GAP insurance?
GAP insurance is great for people who are financing a car, or for people who are leasing a car. It can, in many situations, help people avoid thousands of dollars in debt due to an accident that was not their fault.
If you end up in a car accident while you’re paying off a lease or a loan, GAP insurance will cover the difference. This leaves you with a clean slate so that you can continue on with your life and get a new car fast.
Why do people say GAP insurance is a rip-off?
People say it’s a rip off because it’s often overpriced. Car dealerships tend to profit heavily off of GAP insurance policies. Some premiums can have commissions as high as 50%, which means you’re literally paying the dealership to offer up GAP. Most people don’t realize they could just go to their insurance company and buy it for a discount. So, they end up paying way more than they should, simply because they assume a dealership is the only place to get it.
When would GAP insurance not be worth it?
If you have already paid off your car, GAP insurance clearly wouldn’t be worth it. In many cases, people who only have a couple of months to go before they finalize payment might also find it to be a waste.
If you choose to get GAP insurance, there’s a couple of things you should know…
If you have a totaled car that’s been paid off, this form of insurance will do nothing for you. Going to a dealership will not be a good idea, either. It’s often cheaper and better to just go through your car insurance company.
Finally, if you’ve ever had a moment where you’ve had a car accident while you were still financing it, you’ll understand why GAP is so important. Sure, it’s pricey, but with the peace of mind it offers, there’s really no reason to avoid it.