Gap Auto Insurance: Find Out If You Need It

Gap auto insurance (or guaranteed asset protection) is insurance that will cover the monetary difference between the fair market value of your vehicle and your payoff if the vehicle is totaled in a collision, provided that your car loan is kept current. Gap insurance is a great choice if you are making little or no down payment on your vehicle, or if you are taking an extended term loan of between 60 and 84 months. Borrowers who finance negative equity without making an offsetting down payment will also benefit from Gap insurance, as you will not be responsible for paying any difference between market value and payoff if your vehicle is totaled. Most leases, regardless of the term, include Gap insurance, but you may want to check with your dealership if you are considering a lease and you are not sure if the contract includes Gap. Gap insurance is also not recommended for those making down payments in excess of 20% of MSRP. Buyers who make a sizable down payment are normally in good equity positions.

Gap insurance is offered through dealership finance departments and private insurance companies. The Gap insurance offered at a dealership may be offered through the manufacturer's captive lender or through a finance and insurance specialty company like the JM&A Group. Gap insurance policies normally cost between $500 and $700, and there are limitations on the amount the insurance will pay. For example, a JM&A policy will not insure any amount financed beyond 150% of the MSRP on a new car or 150% of book value on a used car. While this is one exclusion, Gap policies are normally very liberal, and the truth is that very few borrowers finance an amount in excess of 150% of MSRP. Gap insurance is a great way to protect your investment, and the relatively low cost of Gap insurance can keep you from owing thousands of dollars in negative equity.