Closing the Gaps on GAP Insurance

You’ve probably heard the term mentioned in passing or maybe your agent quoted it for you, BUT what does having GAP Insurance really mean? Do you qualify? How is it used?

Well, Pioneer is here to answer those questions for you.

GAP Insurance (sometimes referred to as loan/lease gap coverage) is coverage which helps pay off an auto loan or lease if your vehicle gets totaled and you still owe more than the vehicle’s depreciated value.  GAP Insurance helps cover the “gap” between payoff and value. It is important to note that GAP Insurance does not cover deferred payments, penalties, or the cost of extended warranties. GAP Insurance is most commonly purchased from the loan or leasing company you acquired your vehicle through but is also available through most insurance carriers.

For the next question – Do you qualify? If you have an existing auto loan or are leasing a vehicle then: Yes, you may qualify for GAP Insurance. GAP Insurance is most commonly offered for new and leased vehicles but with a loan/lease provider any vehicle with a loan could be a candidate. Vehicles with GAP Insurance must also carry comprehensive and collision coverage or be kept in storage.

Now, we are sure you’re all asking – How do you use it? The best way to answer this question is to give an example.

John has a vehicle that was involved in an accident which resulted in a total loss (when the cost to repair the damages are near or greater than the value of the vehicle). John can file a claim for the value of his vehicle, which with depreciation is $15,000. John also has a loan out on this vehicle. With interest the remaining payoff amount on his loan is $17,500. After doing the math John realizes there is now $2,500 remaining on his loan he will have to pay out-of-pocket because his vehicle’s value was less than that of his loan balance. Lucky for John he has GAP Insurance, so that coverage will bridge the “gap” between the vehicle’s value and the loan balance to cover the $2,500 he owes. 

For new and leased vehicles GAP Insurance can be a saving grace, as a vehicle’s value depreciates the second it is driven off the lot and the amount owed on a vehicle can quickly exceed its value. You may already have GAP Insurance with your loan/lease provider, but if not, your Independent Agent can help you figure out whether you qualify for coverage.

Disclaimer: This is a general interpretation of processes and coverage. All claims are subject to Insuring Agreements, Endorsements, Exclusions, Terms, and Conditions of the Policy.

Have any questions about what you just read? Please contact your Independent Insurance Agent or email us at socialmedia@psmic.com!