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G.A.P. Guaranteed Auto Protection

By Mike Heuer

gap insuranceWhen you lease or buy a new or used vehicle and finance it, the amount owed due to interest, depreciation and other factors can leave the owner vulnerable to a difference in the vehicle’s actual cash value and what actually is owed on it if it is totaled in an accident, stolen or suffers some other total loss. For example, if you buy a car for $30,000 minus a $2,000 down payment and a $500 monthly payment for eight months before suffering a total loss due to theft or an accident. Although nearly $26,000 is still owed on it, the insurance company will value it at closer to $24,000, leaving up to a $2,000 deficit in value plus interest still owed on the initial loan.

In such an instance, a gap insurance plan would cover the difference between the vehicle’s actual cash value and what is owed on the loan, leaving the owner free to pay off the loan and obtain another vehicle without any prior financial encumbrances. The only thing general auto protection will not cover is any deductible amount applied to a car insurance plan. So if a reasonable $250 to $500 deductible were applied to the insured value, the owner still would be liable for that amount. If a $1,000 or higher deductible amount were chosen, the vehicle’s owner also would be liable and might need to make payment arrangements to pay off the balance, leaving him or her tied up financially until paying off the debt.

Who Should Buy It?

1. Anyone leasing a car.
2. When a vehicle is financed more than 5 years.
3. The down payment paid is less than 20 percent of the selling price.
4. When debt from a prior financed vehicle is rolled over into a new car loan.
5. When vehicles are driven more than 16,000 miles per year.
6. People who buy vehicles with high depreciation rates.

When Do You Need It?

There are many instances in which a motorist financing a vehicle would be best suited to apply for coverage. People who lease vehicles almost always face a potential deficit in value if it is stolen or totaled due to a covered peril. And with recent and continued economic turmoil, many borrowers have less than stellar credit scores, making their annual interest rates high and, thus, the potential for a significant difference in actual value and the amount owed a strong likelihood in the event of total loss. Other instances in which general auto protection insurance is a near necessity include when making a down payment equal to less than 20 percent of the vehicle’s selling price, whenever a loan extends beyond five years, whenever exceeding more than 16,000 miles in a year, which greatly can accelerate vehicle depreciation, and whenever buying a vehicle with a traditionally high rate of depreciation, such as a luxury vehicle that drops drastically in value the moment it becomes a “used” vehicle despite having low miles.

How Much Does G.A.P Protection Cost?

But aside from such ideal instances, many more motorists could benefit from the security provided by highly affordable general auto protection plans, which many car dealerships attempt to sell when closing deals on new and used cars. The problem is, the general auto protection plans typically offered through car dealerships often have high hidden costs, such as high commission rates for the dealership, which is why they often press hard to sell general auto protection coverage, especially to buyers of high-priced used cars, trucks and vans. Instead, it is best to use this site’s free calculator to obtain estimates on coverage to protect against potential financial pitfalls.

General auto protection is very affordable due to the fact most plans do not result in a payout. So buying coverage through a car dealership often is the most expensive way to buy what should be affordable coverage. Coverage usually equals about 5 percent or 6 percent of the total annual insurance premium paid. So if paying about $200 per month for car insurance, general auto protection coverage might add about $10 per month to the cost while providing more protection. But that rate can be lowered when obtaining multiple estimates and comparing offers from numerous insurance companies, which is what you can do with this site’s free and secure online rate calculator.

Is it right for you?

While it is a useful tool for many motorists with financed vehicles, there are many instances when it simply is not necessary, such as when buying a used vehicle with low miles that already has depreciated greatly from its new car value, thus making it a very good deal for the second hand owner. Many used cars wind up being fantastic deals when their original owners trade them in with 30,000 miles or less on the motor after only a couple years’ use. Such vehicles typically are given factory grade inspections and returned to mint condition by car dealerships before being released for resale, which can make then extraordinarily great values for smart car owners. In such an instance, the insured value most likely would cover the vehicle’s entire value minus the deductible, making such coverage unnecessary.

Another instance in which such coverage would not be necessary is someone who obtains a reasonable buying price on a low-mileage vehicle and does relatively little driving, creating little by the way of daily risk as well as slowing the rate of depreciation. In such instances, a vehicle’s value would drop at a slower rate than one being driven many miles on a daily basis. Between the good buying price, a low interest rate and slow rate of depreciation, such a plan typically would not be necessary.

Tips and Reminder:

Once an affordable plan has been obtained, it is best to keep in in force for as long as the deficit exists. Many finance plans on cars, trucks, vans and other vehicles have a great deal of interest up front, and when it has been paid down after a couple years, the difference in value might be gone along with the need to insure against it. And if you have general auto protection insurance in place and sell your vehicle, it should be possible to obtain a refund on any coverage for which you paid but did not obtain due to selling the vehicle. But if you buy a new vehicle and finance it, thus creating another potential deficit, a new insurance plan could credit that amount or carry it over as a partial payment on a new general protection policy.