GAP Insurance - Is GAP Necessary on Auto Loans and Leases?
I’m uncertain what GAP Insurance is, or if I need it.
My wife and I have been shopping for a new minivan in Columbus, Ohio where we live. We haven’t yet agreed on a particular model, but we have narrowed our choices to three so the dickering won’t be far off. I’d prefer to buy the vehicle outright with 60 month financing, but leasing is not out of the question. My wife prefers the lease since it will allow us to drive a nicer vehicle while enjoying cheaper monthly payments than if we’d bought. Ideally, we would like to put 10% or less down on a new minivan priced around $30,000.
I am told GAP insurance is a must-have on a lease, but unnecessary when buying a new car outright. I need to know the purpose of GAP Insurance and if you would recommend it in my situation. If you can, please give me enough facts about this coverage to keep the dealership from sticking it to me. Your help is appreciated.
Paul
Columbus, Ohio
David Williams writes:
Thanks for your letter, Paul! Here are the facts about GAP Insurance and who can benefit by purchasing this type of coverage.
What is GAP Insurance?
GAP, which stands for Guaranteed Asset Protection is insurance designed to cover the difference between your outstanding loan or lease balance and the actual cash value of your automobile.
It works like this: In the event your vehicle is deemed a total loss from vandalism, fire, theft, accident, or by the wrath of nature in a flood, tornado or hurricane, GAP Insurance is there to see that your loan balance is paid. GAP coverage makes up for the difference between the balance you owe on your auto loan and the retail market value of your car paid by the insurance company.
GAP insurance is available for automobiles, vans, and light trucks, including sport-utility vehicles, even motorcycles.
Should you purchase GAP Insurance?
Gap insurance is normally an optional type of insurance that one may purchase in addition to the standard auto insurance policy. It is relatively inexpensive since it only covers a portion of the loan as opposed to the entire balance owed on an asset. GAP insurance is particularly advantageous when a consumer finds himself/herself owing more on a car than it is worth.
For instance, if you followed through on your plan to buy or lease a new minivan and it was unexpectedly damaged to the extent it couldn’t be fixed economically, GAP insurance would pay off the portion of your auto loan over and above what the insurance company determined it would pay you for the car in a total loss settlement. This amount could be significant, especially in the first few months of ownership when depreciation of your car’s value is greater than at any other time.
If you are accident prone and typically pay as little out of pocket as you can when purchasing or leasing a new car, buying GAP insurance will be money well spent. If on the other hand you put down a large deposit on your car, financing as little as possible, GAP insurance may not be a prudent investment.
Where to Purchase GAP Insurance
Car dealers love to sell GAP Insurance coverage, but you are wise to be wary. GAP Insurance is considered among the most profitable add-ons an automobile dealer can slap onto your new car purchase or lease contract. If you do your research you’ll find GAP coverage is significantly less expensive when you buy it through your auto insurance company as opposed to buying it at the car dealership.
Often, GAP Insurance seems like a deal when a car dealership automatically calculates it into the payments on vehicles it is selling or leasing. Some dealers even make it difficult to say “no” to buying GAP coverage on the spot. But, beware! When GAP coverage is included in the deal at the dealership, check the fine print to see how much it is costing you. This is an area where you really need to pay attention as it is rarely a bargain. Contracts vary from dealership to dealership, and affordable GAP Insurance may or may not automatically be part of the finance and insurance package on your new car. If it is being shuffled onto the contract without adequate explanation to a car buyer, you can bet you are overpaying.
GAP Insurance is available in most states, but not all. It is, however, available in Ohio where you reside. GAP Insurance can even be bought over the Internet from companies that specialize in nothing but this particular insurance product. You can probably find GAP coverage from Internet sources for as little as $300 that would cost twice that amount if purchased from a car dealership.
Insurance experts tell us that consumers need GAP Insurance if they are financing 80 percent or more of their vehicle purchase. In your case, with only 10 percent down and a sizeable, lengthy loan, I would definitely recommend that you buy GAP Insurance coverage on your new minivan.
I hope I’ve answered your question adequately, and trust you find a real deal on a safe minivan you and your wife will enjoy for years to come!
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One Comment on GAP Insurance - Is GAP Necessary on Auto Loans and Leases?
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admin on
Fri, 3rd Aug 2007 2:10 pm
Vehicle buyers are increasingly opting for gap insurance coverage in the first half of 2007, so says a strong majority of participants in an informal auto dealership Web poll. 25 percent of the poll’s participants called the increase in buyers of gap “substantial,†while another 40% of auto dealers cited “modest” increases in gap insurance sales for the period. Source - Survey: More buyers opt for gap coverage
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