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Buying a Car: When Should You Buy GAP Insurance?

If you’ve purchased a car at a dealer before, you’ve probably been offered GAP insurance — an acronym for guaranteed asset protection insurance. This insurance is usually offered to you in a dealership’s finance office when you’re buying a car, and it’s designed to add on to the insurance coverage you already have. So what is it? And is it worth it? We have a few answers that should give you a better idea of what GAP insurance is and whether or not you need it.

What Is GAP Insurance?

Simply put, GAP insurance is additional insurance on a vehicle that covers the vehicle’s value between the amount you owe and the amount the vehicle is worth.

That’s still a little wordy, though, so here’s an example that should help explain it: Say you buy a new car for $30,000, and you finance the entire amount over 60 months. A year later, you get into an accident and the car is totaled. In this case, the insurance company would pay out the car’s value — $20,000, for instance. Unfortunately, you probably still owe at least $24,000 on your loan — and possibly more. GAP insurance takes care of the $4,000 difference between what the insurance company pays for the car and what your loan is worth, to ensure you won’t lose any money in the event of an accident. Find a new car for sale near you

Should You Buy It?

Whether or not you should buy GAP insurance depends greatly on the way you pay for the vehicle.

If you pay with cash or make a large down payment (in excess of 20 percent), there’s no reason to buy GAP insurance. That’s because GAP insurance is only designed to cover you in situations where you owe more than the car is worth — and in these cases, you probably won’t.

However, if you finance the vehicle over a longer term (more than 48 months) or put only a small amount down, you should seriously consider GAP insurance. This is because cars tend to depreciate much faster than you pay off your loan, which means you will likely be underwater on your loan for a few years after you buy your vehicle. Should you get in an accident, you’ll owe your bank more than the car is worth — and that’s exactly what GAP insurance is for.

Where Can You Get It?

As you would do before purchasing any insurance policy, you should shop around before buying GAP coverage. While a dealership will offer you GAP insurance when you’re buying a car, you may want to call your regular insurance company first to see if you can get a better deal — or at least to get a quote, which can help you negotiate the cost of GAP insurance at the dealership.

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Editor’s Note: This article has been updated for accuracy since it was originally published.


Doug Demuro
Doug DeMuro writes articles and makes videos, mainly about cars. Doug was born in Denver, Colorado, and received an economics degree from Emory University in Atlanta. After graduation, Doug spent three years working for Porsche Cars North America. Eventually, he quit his job to become a writer, largely because it meant that he no longer had to wear pants. Doug’s work has been featured in a... Read More about Doug Demuro

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  1. I bought a used 2014 Silverado for $24,200 with zero down and financed it for 72 months.  The GAP Insurance was $800 and covers up to 150% of the car value.GAP Insurance through my insurance…shelter….is $38 a year but only covers 125%.  so the car dealer I think was a great ripoff.

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