Keys to a new car

When to Consider GAP Insurance

Considering Guaranteed Auto Protection...


California requires drivers to purchase liability insurance for their vehicles. Liability insurance will typically cover most fender-benders but if your car is totaled or stolen, insurance will pay you the value of the car at that time. The problem is that cars depreciate the minute you drive them off the lot and you probably owe more than the car is worth. This leaves a “gap” between what the insurance company gives you and what you owe. In this situation, GAP insurance may have helped.

What is GAP?

Guaranteed Auto Protection, also known as GAP insurance, covers the difference between the value of your car at the time it is totaled or stolen and what you owe on the loan. Additionally, GAP prevents the deficiency loan balance from being added to a new loan in the event of a total loss, and protects your credit rating.

GAP is typically offered by the lender at the time you purchase your car but can also be purchased through your insurance company. It’s usually a low, one-time cost.

Who may need GAP?

If you made a small down payment or hold a longer loan term, it will take you longer to build equity in your car. In these cases, you may wish to consider getting GAP insurance because the likelihood of owing more than the car is worth at the time of loss is higher. In addition, if you tend to put a lot of miles on your car, it will depreciate quicker than other cars, putting you at greater risk of a gap.

When does it makes sense to pass?

If you can afford the cost gap between the value of your car and the amount you owe, you could probably pass on GAP. However, you will want to weigh the odds of a total loss occurring with other costs to replace the vehicle and pay off the loan.

If you own your car outright, you don’t need GAP either.
If you are feel that you may owe more than your car is worth, you should consider GAP insurance. Speak with your insurance company or your lender for a quote. If you hold your auto loan with 1st United, you can purchase GAP through us for a low, one-time cost. Contact us at (800) 649-0193 for details.
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