June 20, 2009


GAP (Guaranteed Auto Protection) Insurance -- is a term commonly used to represent the coverage 'gap' between the amount you owe for your car and what your car is actually worth. Even if you carry full coverage (comprehensive and collision), in the event of an accident, insurance will only cover the market value of your vehicle. The market value of a vehicle in many instances is less than the amount owed [for a number of potential reasons]: vehicle depreciation; little or no down payment made; extended term loans; rolling negative equity into a purchase; leasing a vehicle; borrowing more than the purchase price (rolling tax, title, and loan fees into the loan), etc. This negative equity scenario is often referred to as being "upside down" in a loan. In this situation, you will ultimately be responsible for the loan deficiency. Unfortunately, in this difficult economy, these types of upside down situations are very common. According to Edmunds, 1 in 5 cars financed in February 2009 included debt from a prior vehicle. The amount of that negative equity rolled over? $4,676!

Not all insurance companies will offer Gap Insurance. Not all situations will warrant having Gap Insurance. If you will never be in a negative equity situation, you will never have a need for gap protection. Before buying gap protection, make sure you're not already covered ... lease companies commonly include gap coverage in the lease agreement for their own protection. Some auto insurance policies will also include gap protection as part of their standard coverage. So read the policy and ask questions first!

Gap Insurance can be purchased as an additional coverage on your existing policy or can be purchased as a separate policy with a different company. You should price this insurance the same way you would any other insurance product to find the best deal for your situation. Gap coverage is available in most, but not all states (not available in CT, LA, NY, VA, and WA).

If purchased through a dealer or vendor (these are typically the most costly options), the coverage is typically a one-time charge (a few hundred dollars - often $300 - $500). If purchased through an auto insurance company, it will typically be a small add-on to your monthly premium (that you will continue to pay as long as you have the policy). Before purchasing, make sure the product would cover you in the event of any loss (i.e., natural disaster, theft, etc.) - not just an auto accident. As with any insurance, do your homework first. MSN Money recently wrote an article on gap insurance, "What a car wreck could cost you," that offers helpful information and advice.