Your brand-new vehicle just left the lot.  It drives carefully, looks well and you're proud of it.

The value of your car, however, unexpectedly drops as soon as you drive it away, frequently by hundreds of dollars.

Now consider the following scenario: a few months after you buy the car, it is stolen or is damaged in an accident.

Your auto policy only reimburses the vehicle's actual cash value, not outstanding financing obligations.

Gap Insurance might help you avoid an economic crisis in this situation.

What is Gap insurance?

The acronym 'GAP' represents Guaranteed Asset Protection.

It discusses the distinction (or "gap") between:

• How much your car is worth now (its market value), and
• What you still owe on your car loan or lease.

Without GAP insurance, you remain responsible for the balance on an unusable automobile.

Real-Life Example

You spend $30,000 on a brand-new vehicle.  You remain responsible for $27,000 on your debt however it has increased in value to $23,000 after a year. Then, it gets wrecked in an accident.

• Your insurance pays $23,000 (market value)
• But your lender still wants the remaining $27,000
• You’re stuck paying the $4,000 difference — unless you have gap insurance

When You Need Gap Insurance

Gap insurance isn’t for everyone, but here’s when it’s especially smart to have:

• You lease your car – Leasing companies often require gap coverage.
• You financed a new car with a small down payment – Cars depreciate fast, and you might owe more than it’s worth.
• You chose a long-term loan – Loans over 60 months mean slower payoff, which increases the gap.
• Your car model loses value quickly – Some brands depreciate faster than others.

GAP coverage provides financial security if you fall into these high-risk categories.

Where Can You Get It?

You can buy gap insurance from:

• The car dealership – Easy, but usually the most costly solution.
• Purchasing through your auto insurer typically costs less than dealer-offered coverage.
• A standalone gap insurance provider – You can shop online for the best rates.

Many people bundle it with their regular car insurance for convenience.

How Much Does It Cost?

Fortunately, GAP coverage typically comes at a modest price point.

• If you added in your auto policy it’s typically costs is $20 to $40 per year.
• At a dealership, it might be $500 to $700 one-time fee, rolled into your loan.

The minimal cost pales in comparison to potential financial liabilities.

What Gap Insurance Does NOT Cover

This protection exclusively bridges the disparity between your auto loan balance and the insurer's actual cash value determination. It doesn’t cover:

• Car repairs
• New car replacement
• Missed loan payments
• Deductibles (in most cases)

You’ll still need regular car insurance for all of that.

Final Thoughts

Don't forget about gap insurance while purchasing or leasing a new car.

It's something that you hope you never need, but in a time of crisis, it might save you a lot of financial distress.

For minimal additional cost, this safeguard shields your finances from accelerated depreciation risks.

Before driving off the lot, ask yourself:

“If I totaled this car tomorrow, could I pay the difference?”

If that's not your situation, gap coverage could be your ideal financial safeguard.