What does GAP insurance cover?

So, you’ve just driven off the lot with your shiny new car—congratulations! But before you start cruising down the highway, let’s talk about something that might not be top of mind: GAP insurance. No, it’s not a trend or a new car feature, but it could be the difference between a smooth ride and a financial pothole if life throws you a curveball. Wondering how it works? GAP insurance, or Guaranteed Asset Protection insurance, is designed to cover the difference between the amount you owe on your car loan and the actual cash value of your vehicle in the unfortunate event of a total loss. This can be particularly advantageous if you have a high-interest loan or a car that depreciates rapidly.

Understanding the benefits of GAP insurance can help you make smarter decisions about your car loan. We’ll walk you through what it covers, when it comes in handy and what impacts the cost. Let’s make sure you’re fully covered from day one.

Understanding GAP insurance

As soon as you drive your new car off the lot, its value begins to depreciate. If your car is stolen or involved in a serious accident, your primary insurance typically covers only the actual cash value of the car at the time of the loss. This amount may be significantly less than what you owe on your car loan, leaving you with a financial shortfall.

This is where GAP insurance steps in. It covers the difference between the insurance payout and the outstanding loan amount, ensuring you are not left with a hefty loan balance for a car you no longer possess. Car owners who finance or lease a new vehicle are often required to have GAP insurance by their lenders. However, even if it isn't mandatory, the benefits of GAP insurance can provide peace of mind and protect your financial well-being.

Moreover, GAP insurance can cover deductibles and additional expenses. When you file an insurance claim, you may need to pay a deductible before your primary insurance coverage applies. GAP insurance can help cover this deductible, reducing your out-of-pocket costs. Additionally, it may cover extra expenses incurred during the claims process, such as rental car fees or towing charges.

By understanding what GAP insurance covers, you can have peace of mind knowing that you are financially protected in various scenarios. To learn more about the benefits of GAP insurance, contact Solarity Credit Union today or visit our website with more information and FAQ’s.

Situations where GAP insurance is beneficial

GAP insurance is a valuable coverage option that can protect you financially in various situations. Let's explore some common scenarios where GAP insurance really shines:

New car purchases: When you buy a brand-new car, its value depreciates significantly as soon as you drive it off the lot. In the event of a total loss due to theft or accident, your auto insurance typically covers the actual cash value (ACV) of the car, which may be lower than the amount you owe on your loan. GAP insurance bridges this gap by covering the difference between the ACV and the outstanding loan balance.

Financing a car with a small down payment: If you put little or no money down when financing, you could owe more than the car is worth. GAP insurance covers the potential shortfall and gives you peace of mind.

Leasing a vehicle: Leasing a car might feel like renting a nice pair of shoes—until you step in a puddle. If your leased vehicle is totaled, GAP insurance covers the difference between the lease payoff and the car’s ACV, ensuring that you’re not stuck with extra fees.

Buying a car with a long loan term: Longer loans often mean lower monthly payments, but they also mean your car depreciates faster than you’re paying off the loan. GAP insurance bridges the difference if the car is totaled.

Factors affecting the cost of GAP insurance

Several factors influence the cost of GAP insurance, including your car’s make, model, age, loan terms, insurer and even your credit and driving history:

Newer and more expensive vehicles often mean higher premiums. The bigger the gap between your car’s value and what you owe, the more you’ll likely pay.
Loan or lease terms also play a role. Longer terms can lead to higher costs since the difference between your loan balance and car value may grow over time.
Insurance providers and policy options vary, so comparing quotes is key. Shopping around can help you find the best coverage at the right price.
Finally, your credit history and driving record matter. A strong credit score and a clean driving record might help you land a lower premium.

At Solarity, we understand the importance of protecting your investment and your financial well-being. We offer GAP insurance to our members, ensuring that you have the coverage you need in case of an unfortunate event. Our GAP insurance offers up to $1,000 of insurance deductible coverage,* $1,000 credit towards the Solarity financing of a replacement vehicle and can be added to any vehicle loan for a low, flat, one-time premium of $399. Contact us today to learn more about our GAP insurance options and how we can help you stay financially secure.

GAP insurance may not be something you think about every day, but when the unexpected happens, it could be a lifesaver. If you’re driving a new car, leasing or have a small down payment, GAP insurance ensures you won’t be left paying for a car you no longer have. Ready to get covered? Contact Solarity Credit Union at 800.347.9222 today or visit our website for more information or to get a free, no-obligation quote. Our experts are here to help you stay financially secure, no matter what the road throws your way.