Auto Insurance FAQs: What Is “Gap Insurance” and Do You Need It?

If your vehicle is declared a total loss, you might face a financial shortfall because you are responsible for the difference between your car’s actual cash value and the outstanding balance on your loan or lease. Gap auto insurance covers this and is therefore valuable for most people who have bought their vehicle on finance. 

Gap car insurance, also known as “guaranteed asset protection” insurance, is a type of coverage designed to address the discrepancy that can arise between the value of a vehicle and the amount owed on a car loan or lease. In the event of a total loss due to factors like accidents, theft, or natural disasters, standard car insurance typically reimburses you for the current market value of your vehicle. 

However, this amount might fall short of what you owe on your loan or lease. Gap insurance bridges this gap by covering the difference between the insurance payout and the outstanding balance on your vehicle financing. 

Whether you need to purchase gap car insurance depends on your specific circumstances. It’s particularly beneficial for individuals who have financed a vehicle with a low down payment or have a lease, as they are more likely to experience a gap between the vehicle’s value and the remaining loan or lease balance. Additionally, those who drive vehicles that depreciate rapidly might find gap insurance useful. 

On the other hand, if you made a substantial down payment, the gap between the car’s value and any outstanding balance might be smaller, reducing the necessity for this coverage. Carefully assess your financial situation and the terms of your vehicle financing to determine if gap insurance is a wise investment for you.

Working with an insurance agent is important for individuals considering gap insurance because agents can provide personalized guidance, help assess whether gap insurance is necessary based on individual circumstances, and ensure that the coverage selected aligns with their financial needs and vehicle financing terms. Reach out to us at DTRT Insurance and schedule a meeting with one of our advisors to learn more.