Why New Car Buyers Should Consider GAP Insurance

GAP insurance

We had a Houston caller this past weekend who lost three brand new cars to Hurricane Harvey.  The highest mileage one was 2500 miles.  He made the statement “thank goodness for GAP”.  I moved on to try to help him but it hit me that some people may not know about this terrific insurance and thought I would take the time to explain GAP insurance.

What Is GAP Insurance?

Generally, when you buy a car, you get offered the opportunity to purchase certain insurance policies when it comes time to sign your final papers. They include credit life insurance, sometimes disability insurance, an extended warranty, and GAP insurance among other optional products.

Everyone buying a car has a different set of circumstances and which of those policies you purchase, if any, are certainly your choice. However, the one policy that for most should be a must-have is GAP insurance. GAP stands for Guaranteed Auto Protection and it protects you against being in a deficit position should your vehicle become a total loss like our caller, or if it is stolen and not recovered.

Consider Vehicle Depreciation 

It is no secret that cars depreciate the day you drive them off the lot. After all, your new car is now a used vehicle and can no longer be sold as new. Depending on the vehicle, the immediate loss of value can be thousands of dollars. I hear from people all the time who think their collision insurance will automatically pay off a vehicle loan if it is destroyed. That could not be further from the truth.

In the event of total loss or an unrecovered theft, the insurance company is only obligated to pay replacement value for your car. So imagine the panic you would feel if the insurance company paid you $20,000 for your totaled car, but you still owed $25,000 on it. I have seen cases way worse than that. I have seen people pay for cars that were destroyed years after they were wrecked or stolen. GAP takes care of the difference between the two amounts; the value of the car and the amount owed. Remember, your lender doesn’t care that your car was totaled or stolen; they still want that monthly payment!

Should Everyone Buy GAP Insurance?

Are there any cases when you should not strongly consider GAP insurance? Yes, those paying cash for a car or those putting up a really large down payment do not have to worry about being “upside down” on their vehicle, but these cases are by far in the minority. Most people today put little or no money down and many actually roll negative balances from their old vehicle into the new loan. In those cases, GAP is a must.

Just to give you an idea of the cost, on a typical $20,000 loan for 60 months, the premium is $275 total over the length of the contract. On a 6.9% loan, GAP insurance adds $5.43 per month to your payment. On lower interest rates, the effect on your payment is even less. If you want to add GAP at the time of purchase, all dealers offer the coverage. You can also check with your insurance agent, many of them offer the coverage. If you already have a loan and want to purchase GAP, you can check with your insurance agent.

Bottom Line

For me, GAP insurance is the most affordable and necessary policy you should consider when buying a car. You cannot do anything about vehicle depreciation-whether it is a brand new car or a pre-owned one, but you can protect yourself against losing your vehicle and still owing a large balance after the fact.

Photo Copyright: designer491/Shutterstock

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9 Comments
  1. james bro 5 years ago

    The weird thing is when I’ve bought a car and financed through the manufacturer, in case was through Nissan, GAP was going to cost like 600 or 700 bucks, but when I finance through my credit union, it’s usually only like 200 bucks.

  2. Fred Meczka 2 years ago

    Jerry-just purchase 2005 Honda Element with 89000 miles what (preventative) maintenance should I do thanks
    Fred Meczka Metch44@aol.com

    • Michele Sanders 2 years ago

      Check to see if it has a timing belt or chain, if a belt, get that changed. I’d have the tranny fluid changed. Otherwise, it will be to make repairs as you go.

      THANKS for listening to the show!

      Jerry Reynolds, President
      Car Pro Radio Network

  3. Martin 2 years ago

    Dear Friend,

    We will be attending the Cleveland Auto Show again this month and wondered if you will be there. We’d love to see you and say “HI” again.

    Martin & Barbara

    • Amy Plemons 2 years ago

      Thanks so much guys! We won’t make it this year, we’ve done Boston and Detroit, and have Dallas coming up. Hopefully, we’ll get back to Cleveland next year, we had an amazing reception there last year. I sure appreciate you guys listening! -Jerry

  4. Chester Bowie 9 months ago

    Greetings, what about leasing. Does one need “gap insurance?”

    • Amy Plemons 9 months ago

      Chester, you need to spend time reading articles I’ve written at my FAQ page. All your questions are already answered. Thanks for listening to the show. Click: http://www.carprousa.com/faq

      Jerry Reynolds, President
      Car Pro Radio Network

  5. Dennisfrost 9 months ago

    I have a Silverado basic woke truck, V6 engine 190k miles. Should I have the timing belt checked. Who,where,when. I am the original owner l plan on keeping the truck

    • Amy Plemons 9 months ago

      Dennis, check with a Chevy dealer to verify, but I am pretty sure that engine uses a timing chain, and if so, there is no need to do anything. Thanks for listening to the show!

      Jerry Reynolds, President
      Car Pro Radio Network

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