Guaranteed Asset Protection (GAP) Contract for a vehicle is a type of insurance or protection plan designed to cover the difference between the amount owed on a car loan or lease and the vehicle's actual cash value (ACV) in the event of a total loss (such as in the case of an accident or theft).
Key Benefits of a Guaranteed Asset Protection Contract
- Coverage: The primary function of a GAP contract is to pay the difference between what you owe on the vehicle (the loan or lease balance) and its actual market value,which may be less due to depreciation. For example, if your car is worth $15,000 but you owe $20,000 on your loan, GAP coverage would pay the remaining $5,000 that you still owe.
- Total Loss Situations: GAP coverage applies when the vehicle is deemed a total loss by the insurance company, meaning the cost to repair it exceeds its value. It can also cover situations where the vehicle is stolen and not recovered.
- Coverage for Depreciation: Vehicles depreciate in value quickly, especially within the first few years. Standard auto insurance typically only reimburses for the ACV (which takes depreciation into account), but this may leave the vehicle owner owing more than the car is worth. GAP insurance ensures you're not left paying for a car you no longer have.
- Optional Purchase: GAP insurance is typically offered as an optional purchase when you finance or lease a vehicle, and it can be bought at the dealership, through your auto insurer, or through a third-party provider. The cost of the coverage is generally either paid upfront or rolled into monthly payments.
- Duration: GAP coverage usually lasts as long as the vehicle loan or lease term, covering you for the duration of the financing. Some contracts may be valid for a set period, such as 3 or 5 years, while others may extend through the entirety of the loan term.
- Exclusions: GAP coverage generally doesn’t cover items like deductibles, missed payments, or damage caused by neglect or illegal activities. It’s also not applicable if the vehicle is sold or paid off before the policy term ends.
- Peace of Mind: GAP coverage provides peace of mind, especially for those who put little or no down payment on a vehicle, as it helps avoid the financial burden of continuing to make payments on a vehicle that is no longer in their possession.
A Guaranteed Asset Protection (GAP) Contract is an optional policy that covers the difference between the remaining balance on a vehicle loan or lease and the actual cash value of the vehicle in the event of a total loss, protecting the vehicle owner from owing money on a vehicle that they can no longer use.
