Guaranteed Auto Protection (GAP) is insurance for car buyers who are financing their vehicle and is available only at the time of sale. It is especially beneficial if you don't plan to make a significant down payment or you are financing negative equity from a traded vehicle. GAP benefits come into play in the event of a total loss. Your primary insurance company may pay the actual cash or market value of your vehicle. However, you may owe your bank more than the market value of your vehicle when you consider tax, title and license fees. The difference between what you owe your lender and what your insurance company is willing to pay is the amount GAP insurance pays. And most GAP insurance policies will pay your primary insurance deductible up to $1,000.
Here's an example: Say total amount financed for your vehicle is $30,000 for 60 months, and your vehicle is involved in an accident and deemed a "total loss" by your insurance company. At the time of the total loss, your loan balance is $28,000, but your primary insurance company agrees to pay you $20,000 based on the current market value of your vehicle. You would be responsible to pay $8,000 to cover the "gap" between what you owe your lender and the amount your insurance company is willing to pay.
For a small monthly fee, you can have peace of mind that you won't be asked to pay for a car you can no longer can drive.
That's the GAP advantage.
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