Guaranteed Asset Protection (GAP) is a low-cost addition to normal auto insurance that protects you from financial loss if your vehicle is stolen or declared a total insured loss. You may believe that your auto insurance covers you in the event that your vehicle is totaled or stolen and not recovered. However, you might be in for a rude awakening.
While auto insurance covers the vehicle’s replacement value, you may be responsible for the difference between the insurance payout and the remaining loan balance, which maybe thousands of dollars.
With vehicle depreciation, loan periods lengthening, and repair costs growing, the odds of a “gap” between the remaining loan balance and the insurance payment are higher than ever. When you buy GAP from Chartway, you don’t have to worry about paying off your loan or replacing your vehicle if it’s totaled.
Vehicles that have just been purchased depreciate the moment they leave the dealer’s lot. You may owe more than the vehicle is worth if it is totaled in an accident or stolen and not recovered. The purpose of GAP is to cover the gap between the insurance settlement and the loan balance. More features and control than ever before are available with our choice-driven GAP and GAP with deductible help.
How does GAP work?
Following a collision, GAP covers the “gap” between what your vehicle is worth and what you are actually responsible for paying on your vehicle loan. It ensures that if your car is totaled or stolen, your loan will not become a financial burden.
Let’s pretend you spend $35,000 on a brand-new automobile. We all know that as soon as you drive it off the lot, its value plummets. Then it’s possible that it’s just worth $27,000. In the event of an accident, your auto insurance will cover the vehicle’s replacement cost, which is $27,000. They must satisfy the responsibility of replacement at current market value, according to the policy. It has nothing to do with your vehicle’s loan value.
You’re still short by $8,000. GAP coverage could potentially compensate for the shortfall. Keep in mind that the automobile insurance reimbursement in the preceding situation goes to your auto lender to pay off a car that is no longer drivable. Furthermore, the cost of gap insurance varies depending on a number of factors, including the worth of your vehicle. By clicking here, you can calculate your GAP coverage.
One of the benefits of GAP is that it might assist you to avoid accumulating “negative equity,” or debt from an old car loan that is carried over into a new one. If your automobile is totaled and your insurance payout does not cover the whole sum on your car loan, you may have to roll the balance into your next car loan if you don’t have GAP.
Not only would this result in more debt, but it would also put you at risk of defaulting on your new car loan. However, if your automobile is totaled and you have GAP coverage, your old car loan will not be carried over to the new one.
Can I get GAP coverage after I buy a car?
After you buy a car, you can still buy GAP. In any of the following situations, you would want to consider introducing GAP:
- You’re looking to buy or lease a new or gently used automobile.
- You’re about to purchase a vehicle that’s worth a lot of money.
- You’re financing a new or used vehicle with little or no cash down, resulting in a “gap” between the vehicle’s actual worth and the loan amount.
- You don’t have enough cash in the bank to cover the difference between what you owe on your loan and what your automobile is worth in cash if it’s stolen or totaled.
Features and coverage of the GAP:
- The difference between the settlement of the primary motor insurance carrier and the protected balance is paid by GAP.
- The protected balance is the amount outstanding on a car that is directly tied to the vehicle’s purchase or the amount owed on a vehicle that is secured by the vehicle.
Limits on coverage apply to claims.
The GAP premium can be added to the new loan’s total amount funded.
Add GAP coverage to your Chartway loans to protect yourself from the financial strains of death, disability, or involuntary unemployment. Loan protection is also available for car repairs and replacement.
We are able to provide these reasonable coverage alternatives for you and your family because we are a member of the CUNA Mutual Group. We’ll be pleased to address any queries you have by contacting us or visiting your local branch.
Insurance to cover the gap
Gap insurance is an add-on endorsement to your existing motor insurance policy that you purchase from your auto insurance company. It bridges the gap between what you owe on your car or RV loan or lease and its actual cash worth, which is defined as the cost of replacing your vehicle with a comparable one after depreciation.
If you’re involved in an accident and your insurance provider determines that your car or RV is totaled (also known as a “total loss”), your collision coverage:
- Will only pay you the current market worth of your property.
- Will not cover any remaining balance on your loan.
- Example: How does gap insurance work?
- $30,000 auto loan amount on a brand new vehicle
- At the time of the accident, the actual cash value was $25,000
- Without gap coverage, the payoff is $25,000 (minus your deductible)
- You still owe $5,000 on your loan.
- With gap coverage, the payoff is $25,000 + $5,000.
- You owe $0 on your loan.
- What does gap insurance not cover?
- It does not cover any interest you may be charged by the lender, as well as any late fees or missed loan payments. It also excludes any extended warranties that may have been added to your auto loan.
Make certain you understand what you’re purchasing.
Gap insurance is a marketing term used by car dealerships and lenders to sell you something that isn’t actually insurance. A debt waiver agreement, marketed as gap insurance, is most likely what auto dealerships offer. There are, nevertheless, important distinctions between these two items.
Debt waiver agreements supplied at a dealership are frequently costly, and you won’t be able to cancel or return one if you pay off your car loan quickly and accumulate equity.
A gap insurance endorsement, on the other hand, normally only raises your premium slightly, and you may cancel it if you get your auto loan in good standing.
Before you go shopping for a new car or motorhome, ask your insurer about gap insurance choices so you can compare their insurance policies to what the auto dealer has to offer. Your insurance provider may never discuss or offer gap insurance to you, but if you ask, they must sell it to you.