Guaranteed Asset Protection, or “gap” insurance, is an optional automobile coverage that helps you transfer the financial risk if you are involved in an auto accident and you owe more for your vehicle than the amount that it’s worth. This is referred to as being “upside-down.”
Car owners often assume that if their car is totaled, it will be replaced at the amount they paid, or at least the amount they owe. This is not always the case. Since a new car’s value drops significantly the minute it’s driven off the lot, if you are involved in an accident that totals your vehicle in the first few years you own your vehicle, you may find yourself owing the finance company more than the vehicle’s actual value. Gap insurance provides for the “gap” between the two amounts.
Gap coverage isn’t for everybody. Vehicle lessees should strongly consider the coverage because there is no trade-in value and little cash put down. It may not be necessary for used vehicle buyers who pay a decent down payment up front. For new car buyers, it is a great idea for those who paid no down payment or only put a small amount of money down