Guaranteed Auto Protection (GAP) plans may be offered to you when you buy a new car. GAP protection covers the difference between what your insurance pays if your vehicle is totaled and the damage to your vehicle exceeds the actual cash value (ACV), and the amount you still owe the lender at that point.

If you’re told you must purchase a GAP plan to qualify for financing, the cost of the GAP program must be included in the finance charge and reflected in the disclosed annual percentage rate. Only if the plan is optional can it be excluded from the charge and annual percentage rate.

TIP: Ask your dealer what “gap” will exist the day you take delivery of your car. If that is an amount you can pay with other resources, you should consider whether the GAP coverage is a good idea for you. Remember, any add-on product costs you not just the upfront cost but also the interest of paying for this product over the life of the loan.

© Copyright 2016. All rights reserved. This content is strictly for informational purposes and although experts have prepared it, the reader should not substitute this information for professional insurance advice. If you have any questions, please consult your insurance professional before acting on any information presented. Read more.

If you lease a car, you still need to buy your own auto insurance policy. The auto dealer or bank that is financing the car will require you to buy collision and comprehensive coverage. You will need to buy these coverages in addition to the others that may be mandatory in your state, such as auto liability insurance.

Collision covers the damage to the car from an accident with another automobile or object.

Comprehensive covers a loss that is caused by something other than a collision with another car or object, such as a fire or theft or collision with a deer.

The leasing company may also require “gap” insurance. If you have an accident and your leased car is damaged beyond repair, or “totaled,” there’s likely to be a difference between the amount that you still owe the auto dealer and the check you’ll get from your insurance company. That’s because the insurance company’s check is based on the car’s actual cash value which takes into account depreciation. The difference between the two amounts is known as the “gap.”

On a leased car, the cost of gap insurance is generally rolled into the lease payments. You don’t actually buy a gap policy. Generally, the auto dealer buys a master policy from an insurance company to cover all the cars it leases and charges you for a “gap waiver.” This means that if your leased car is totaled, you won’t have to pay the dealer the gap amount. Check with the auto dealer when leasing your car.

If you have an auto loan rather than a lease, you may want to buy gap insurance to protect yourself from having to come up with the gap amount if your car is totaled before you’ve finished paying for it. Ask your insurance professional about gap insurance; it may not be available in some states.

Source: Insurance Information Institution. “Insuring a Leased Car” http://www.iii.org. Accessed December 2, 2015. http://www.iii.org/articles/what-if-i-lease-a-car.html

© Copyright 2016. All rights reserved. This content is strictly for informational purposes and although experts have prepared it, the reader should not substitute this information for professional insurance advice. If you have any questions, please consult your insurance professional before acting on any information presented. Read more.

Dear Valued Customer,

Whether you purchase or lease your car, you need to understand what GAP insurance is all about and how it can benefit you when you need it the most.

GAP stands for “Guaranteed Auto Protection.” It’s a must when you’re leasing your car, however, if you buy a car and only make a small down payment, you might also need a GAP policy.

It’s because of depreciation. Look, all cars depreciate in value, you may even find yourself “upside down” before leaving the lot, or soon thereafter. In fact, according to some estimates, certain cars lose as much as 30% of their value within the first three months.

Standard auto insurance policies cover the depreciated value; in other words, insurance pays the current (depreciated) market value of the vehicle. So what you owe the finance company on your car at the time of a potential accident and the amount your standard auto policy pays can create a negative financial “gap”. If you have GAP insurance it can cover the “gap” so you’re not out of pocket.

Here’s some reasons why you might need GAP insurance:

• Made a down payment equalling less that 20% of the value of the card
• Took financing for 60 months or longer
• Leased the vehicle
• Purchased a vehicle that depreciates faster than the average
• Rolled over negative equity from an old car loan into the new loan

On most auto insurance policies, including GAP insurance with collision and comprehensive coverage adds only about $20 a year to the annual premium, so it’s a small price to pay for a lot of security. Your car dealer may offer to sell you gap insurance on your new vehicle, but it typically costs much less from your insurance agent.

© Copyright 2016. All rights reserved. This content is strictly for informational purposes and although experts have prepared it, the reader should not substitute this information for professional insurance advice. If you have any questions, please consult your insurance professional before acting on any information presented. Read more.