Should You Buy Gap Insurance?

Are you considering buying a new car? If so, it's likely you've heard of gap insurance. Gap insurance is offered by most car dealerships, but you may not be sure whether it's worth it or not. To help you make an informed decision, let's discuss what gap insurance is, who should consider it, and how it works.

What is Gap Insurance?

Gap insurance is an optional form of coverage that can be purchased when you buy a car. It stands for “Guaranteed Auto Protection” and is designed to protect you in the event that your car is stolen, damaged, or destroyed. It covers the “gap” between what your car is worth and what you owe on the loan for it. In other words, it protects you from having to pay out-of-pocket for a replacement vehicle if you can’t afford it.

Who Should Consider Gap Insurance?

Gap insurance can be beneficial for anyone who is financing a car. If you buy a car and take out a loan to pay for it, you will owe more than the car is worth due to depreciation and interest. If your car is stolen, destroyed, or damaged and you can’t afford to replace it, gap insurance will cover the difference. It can also be helpful if you’re in an accident and your insurance company doesn’t cover the full cost of repair or replacement.

How Does Gap Insurance Work?

Gap insurance is usually purchased at the same time you buy your car. It covers the difference between the amount you owe on your car loan and the actual cash value of the car. For example, if you owe $20,000 on your loan but the car is only worth $15,000, gap insurance will cover the $5,000 difference. It will also cover any taxes and fees associated with the purchase. Gap insurance typically costs between $500 and $700 and is typically purchased for a one-time fee.

The Bottom Line

Gap insurance can be a great way to protect yourself from financial hardship if your car is stolen, damaged, or destroyed. It covers the difference between the amount you owe on your loan and the actual cash value of your car. It’s important to note that gap insurance is not required by law, but it can be a wise investment if you’re financing a car. Before you purchase gap insurance, make sure you understand the terms and conditions of the policy and how much it will cost.