Purchasing a new or leased vehicle can be an exciting experience, but it’s essential to understand the potential financial risks associated with new car ownership. For instance, when you drive a new vehicle off the lot, its value diminishes immediately. This depreciation can affect your insurance settlement if you are involved in an accident or incident that renders your vehicle a total loss. A total loss is when the cost of repairing a vehicle exceeds its value, as determined by state laws and insurer rules.
Guaranteed asset protection (GAP) coverage can help bridge the gap between the total amount you owe on your lease or loan and your insurance company’s payout if your car is deemed a total loss after a covered event.
Understanding GAP Insurance
GAP insurance is optional for Massachusetts drivers, but some lienholders may require it. Standard auto insurance policies typically cover a vehicle’s actual cash value (ACV) at the time of loss, which may not be enough to cover the outstanding loan or lease balance.
If your vehicle is stolen or totaled, the ACV provided by your primary insurance might not be enough to pay off the outstanding loan or lease. Without GAP coverage, you may be responsible for paying the difference out of pocket.
GAP Coverage and Limitations
GAP insurance coverage and limitations vary depending on the insurance provider and the terms of your policy. A GAP policy typically covers theft, accidents and total loss due to factors like fire or natural disasters. It may also cover the deductible amount on your primary insurance policy.
As with any insurance policy, certain exclusions (e.g., mechanical failures, regular wear and tear, or intentional damage) may apply. Some policies may have a maximum coverage limit, such as a percentage over the vehicle’s actual cash value. Your agent can help you understand how your GAP policy works.
How to Get GAP Insurance Coverage
Many dealerships and lenders offer GAP insurance as part of their financing options when purchasing or leasing a vehicle. It is crucial to compare the costs and terms different providers offer before deciding.
Your auto insurance company may provide GAP insurance that can be less expensive than the dealership or lender’s coverage. Your agent can help you shop around and compare quotes to find an affordable option.
Contact Us
Contact Schaffner Insurance Agency in Tewksbury, Massachusetts, to learn more about GAP insurance and get a quote.
This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.