What Is Gap Auto Insurance?
GAP (Guaranteed Asset Protection) insurance is a supplement to your automobile insurance policy; it's specifically used when your vehicle is declared a total loss. For this reason, GAP insurance is sometimes referred to as "Guaranteed Auto Protection" or TLP (Total Loss Protection).
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How Does GAP Work?
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GAP insurance kicks in if you have a balance deficiency after an insurance company assesses your vehicle as being totaled, and settles with you. GAP pays an additional sum towards your auto loan balance.
Significance
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In 2008, nearly 25 percent of auto loans were "upside down" or had "negative equity," according to Edmunds.com. Without GAP insurance, consumers may be left owing their lender a substantial amount of money if their vehicle is totaled.
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Misconceptions
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Despite what you may have heard, GAP insurance does not completely pay off the remaining balance on your loan in all circumstances. Each GAP policy has limits to how much it will pay. If you have too much negative equity, your loan may not be paid in full.
Who Sells Gap Insurance?
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GAP insurance is usually purchased at the time of sale, as an add-on, sold by car dealers. Some auto insurance companies also sell GAP insurance.
Fun Fact
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Some states, such as Louisiana, consider GAP insurance so important that they require dealers to offer it to consumers.
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References
- Photo Credit Image by Flickr.com, courtesy of Ross Goodman
