Guaranteed Auto Protection, or GAP, is important to have under certain circumstances. Like its abbreviated name, GAP insurance fills in financially when an auto claim payout is less than the actual value of your vehicle, should it be totaled. Always required for leases and sometimes required for loans, GAP insurance is an optional addition to collision and comprehensive coverage.
GAP for Leases
GAP insurance is especially important when leasing a vehicle. In fact, leasing companies require it. Standard auto insurance will pay out the current value of the car after an accident that renders your car undrivable, but not the total amount that you owe. GAP coverage ensures that you’ll be covered at what the car was worth when it was new so you’re not stuck with continuing lease payments.
Two points to remember:
- Typically, GAP insurance is included in your lease contract, but if it is not you’ll need to shop for coverage.
- Sometimes a lease contract will include a GAP waiver, which means you’re protected if the car is rendered a total loss. If you have that in your contract, you don’t have an actual GAP policy.
- Lease contracts usually require you to have collision and comprehensive coverage.
GAP for Loans
Whether or not you need GAP insurance when you have a car purchase financed depends on a few factors including:
- You’re not paying a large down payment - Generally, a down payment on a car purchase of less than 20 percent, GAP should be considered. This is particularly relevant if your car depreciates quickly.
- Your comprehensive auto insurance policy has you covered – If your policy states that it will pay off the entire financed amount, you don’t need GAP insurance.
Whether leasing or buying, be sure to find out about GAP coverage.