GAP insurance (Guaranteed Asset Protection) covers the difference between your car's actual cash value and the remaining loan balance if it is totaled or stolen. It is designed for financed or leased vehicles, specifically when you owe more than the car is worth.
Gap insurance is an optional car insurance coverage that helps pay off your auto loan if your car is totaled or stolen, and you owe more than the car's depreciated value. This coverage, sometimes referred to as loan/lease gap coverage, is only available if you're the original loan or leaseholder on a new vehicle.
Should I add loan/lease payoff coverage? To avoid owing more than the car is worth after an accident, loan/lease payoff coverage can be very helpful, even if it doesn't cover the full loan balance.
Gap insurance is often worth it if you have a small down payment, a long-term loan, or a leased vehicle, as it covers the "gap" between what you owe and your car's actual cash value (ACV) if it's totaled or stolen, protecting you from being "upside down" on your loan; however, it's less necessary if you have a large down payment, short loan, or pay cash. It's a relatively low-cost, optional coverage that provides peace of mind against rapid depreciation, but you don't need it if you own the car outright or owe less than it's worth.
Gap insurance is a type of auto insurance typically purchased for leased or financed vehicles. If your vehicle is totaled, your standard auto insurance policy will reimburse you for its current value, which could be less than the amount you owe on the loan. Gap insurance would cover that difference.
Gap insurance downsides include being an added cost that doesn't cover repairs, only paying out for total losses (theft, severe accidents), potentially costing more if rolled into a loan (paying interest on it), and not covering other expenses like rental cars or missed payments, making it unnecessary if your loan is close to your car's value.
USAA. Every member with USAA who has an auto policy in effect as of March 31, 2020, will receive a 20% credit on two months of premiums without needing to contact the company. Extended coverage, policy leniency, and special payment arrangements are also available upon request.
Key Benefits of GAP
It helps ensure that you won't face significant out-of-pocket expenses in the event of a total loss. No Effect on Credit Score: If you find yourself unable to pay off the remaining loan balance after an incident, defaulting on your auto loan could have a severe impact on your credit score.
If you did finance or lease your vehicle, lenders often require gap coverage and you'll have to carry it if required. If you're able to forgo the coverage, however, Dave recommends that drivers at least consider dropping gap coverage and putting the premium savings toward paying off their vehicle loan earlier.
Credit bureau reporting does not include who is making the payments, only the record of payments made to each account so whether it is you or the insurance company paying off the loan will not make a difference with respect to your credit score.
Dave Ramsey's core car rules emphasize paying cash, avoiding new cars (unless you're a millionaire), keeping your total vehicle value under half your annual income, and using a strict budget, often suggesting the 20/4/10 rule (20% down, 4-year loan, 10% total car expenses) as a guideline if financing, but preferring no debt at all to avoid depreciating assets trapping you. He stresses buying reliable, used vehicles to prevent debt and build wealth.
GAP insurance does not apply in the event of engine failure, mechanical malfunctions, owner death, or in cases where extended warranty coverage conflicts. For more insurance information like comprehensive insurance coverage and more, visit Suntrup Automotive Group.
The main cons of gap insurance are that it's an added cost, potentially expensive if rolled into a loan (paying interest on it), only covers the "gap" on a total loss (no repair coverage), and can be hard to cancel; you might not need it if you have a large down payment or already owe less than the car's value, and it has specific exclusions like missed payments or rental car fees.
For most people, increasing a credit score by 100 points in a month isn't going to happen. But if you pay your bills on time, eliminate your consumer debt, don't run large balances on your cards and maintain a mix of both consumer and secured borrowing, an increase in your credit could happen within months.
There are a few reasons why GAP insurance won't pay out, including your car only being a partial loss, your policy is no longer active, or intentional or prior damage. Your Gap claim can also be denied for certain reasons. Most companies will limit your Gap insurance coverage to a specified percentage.
Gap insurance covers the amount you owe on your car loan if your vehicle is totaled or stolen. For example, if your car is worth $25,000 but you still owe $30,000, your standard insurance will only pay $25,000. Gap insurance will cover the remaining $5,000 that you owe.
If you have a car loan or lease, you still have to pay your lender even if your car is totaled and you can no longer drive it. However, the insurance company will only pay the car's actual cash value at the time of the loss.
For $9.95 a month, Colonial Penn buys you one "unit" of guaranteed acceptance whole life insurance, where the actual death benefit amount depends on your age and gender (or age only in Montana). The older you are, the less coverage you get per unit, but premiums never increase, and no medical exams are required for ages 50-85.