What is GAP?
In short, GAP is a policy that covers the difference between a vehicle's value and the finance contract pay-off amount at the time of a total lose being declared on the vehicle.
What is a total loss?
Typically a total loss is when an insurance company determines that the cost to repair a vehicle is higher than the cost to replace or if a vehicle is stolen and not recovered.
Is GAP an insurance policy?
Gap is typically stated as an insurance policy; when in the event of a total loss the debt obligation remains open and the insurer of the GAP pay's on your behalf.
There is also what is known as a GAP Waiver, this is when the finance company waives your financial obligation to the portion of your loan that your insurance company has not covered in the event of a total loss.
Who's GAP should you buy?
This is usually not an option as to who's to choose when purchasing a vehicle. Dealerships usually have only 1 policy to offer. However with that being said some finance companies require their GAP when financing with them.
Now, many insurance companies do offer GAP and sometimes try and get you to purchase theirs. We do not advise you to purchase one GAP policy over the other; however we will say that you need to understand the differences between the policies;
- Is there a cap on the amount the GAP policy will payout? If so, is your vehicles finance amount less than that value?
- Are there any other benefits, like down payment assistance, with one policy over another?
- Does the GAP policy cover my insurance deductible?
- What type of vehicle insurance coverage is required by the GAP policy?
Do you need GAP?
This is a personal question. But, from a finance point of view banks and finance companies typically do not allow GAP to be written on a vehicle finance contract if the amount to finance is less than 80% of the vehicles value. This means that you had 20 to 30% down or an equivalent amount in equity in your trade in.
Even with this being said, for people who drive more miles year than the 15,000 miles a year norm, a case can be made for GAP as their vehicles will depreciated fast than normal. In this case, at your request for GAP, a dealer can contact the finance company and request an override on their amount to finance GAP policy minimum.