Close the GAP!

GUARANTEED AUTO PROTECTION aka GAP INSURANCE

Depending on the make and model, a new vehicle loses book value the minute you sign on the dotted line and drive it off the lot. ?It now moves into the secondary market as a “used’ vehicle.

In other words, if you drove the vehicle of the lot, and turned right around and drove the car back to the dealership to sell it to them, you would not offered the price which you just paid. ?

That loss of value is called depreciation. ?Some vehicle make and model depreciate faster than others.

BOOK VALUE

The prices which buyers have paid for the vehicles in the secondary marketplace is used as a factor to derive the current value aka book value of used vehicles. The book value can be checked using the Kelly Blue Book values, or any of the vehicle book value tools available online.

Therefore, your loan on the vehicle may be higher than the book value of the vehicle. ?If you insure the vehicle for the price which you paid, you might be insuring the vehicle for higher amounts than the current book value, but your insurer will not be paying out that higher insured value.?

If you totaled your vehicle, the insurer’s obligation revolves around the vehicle’s current book value, not the price that you paid for the vehicle, not the insured amount of the vehicle.

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UNDERSTAND THE GAP

The difference between your loan balance on the vehicle, and the current book value, creates a gap. ?You are responsible for paying that gap amount.

To illustrate:

Your loan balance is $40,000. ?This is what you owe the finance company.

Your car’s current book value is $29,000. ?This is approximately what the insurer would pay to the finance company for the car which you totaled. ?

The difference between those two monetary points is $11,000. ?This is the gap.

Remember, your contractual loan amount is $40,000. ?The finance company received only $29,000 from your insurer. ?You owe more than the car is worth.

So you are responsible for paying that gap amount of $11,000 to the finance company to fulfill your loan obligation.

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CLOSE THE GAP!

If you owe significantly more on your car than it’s current book value, and you don’t have that amount set aside to cover your potential GAP liability, then it would be a wise to buy GAP insurance.

Don’t be confused. ?GAP insurance DOES NOT cover maintenance and repair to your vehicle. ?It only covers the financial gap between what you owe, and the car’s book value.

If your transmission blows up, you take the car to a repair shop. ?You pay for the repairs. ?Car repair issues have nothing to do with GAP insurance.

WAS THE SAVINGS WORTH IT?

A customer inquired on whether he had GAP insurance coverage. He did not. He revealed that he had recently totaled his new and expensive electric vehicle. He owed more on the loan than the vehicle was worth. He wanted to know if the GAP could be added.

That is a hard NO!

Coverage cannot be used to retroactively cover an incident that has already taken place. Even if the incident happened 60 seconds ago, it has already happened.

Insurance is financial protection from future financial adverse events only. So, adding coverage will not help with past incidents. It will only apply to future accidents.

That was a harsh lesson which I can guarantee that driver will never forget.

In order to save a few measly dollars, customers routinely decline GAP coverage because they believe, they will never need it. Until they do. Then when faced with the prospect that they will have to cough up thousands of dollars to repay the lender/leaseholder on that gap between what is owed on the loan and the totaled out value of the vehicle; reality sets in.

Saving money actually saves money, only when it makes sense.

Declining GAP coverage when one has a loan/lease on a brand new vehicle is...well, the consequences are well deserved.

EXERCISE YOUR OPTION

Vehicle finance and vehicle leasing companies must take steps to protect their interest in the vehicle they have financed or leased in the event the vehicle is totaled or damaged. So they require that you have Comp and Collision insurance on the vehicle.

GAP insurance is optional. ?Some, finance companies and leasing companies may further protect their financial interest in the vehicle by requiring that you have GAP insurance. ?

If your finance or lease company does not require gap insurance, it is prudent for you to get GAP coverage. ?You are placing yourself in a financially vulnerable position if you don’t. ?Exercise your option, and close that GAP.

The auto dealership where you buy or lease the car may offer GAP insurance as part of their sales package. However, you can check with your current insurer, or shop online for GAP insurance coverage.

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Insurance agents speak "insurance?speak." ?An obscure bunch of gobbledygook language peculiar to the insurance industry. Often insurance agents understand in their mind what they are saying, but are unable to translate it into simple language for the consumer to understand. Your insurance agent is juggling many plates in the air as he writes new policies, while trying to help and answer questions from existing insureds. If your insurance rates have increased dramatically, you are unable to figure it out, and your insurance agent have not explained it in a way you can understand; I can audit your insurance coverages, advise where your premiums increased, and offer suggestions on how you may be able to secure a reduction in your premium. Reach out through LinkedIn!

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