Personal GAP Insurance, or Guaranteed Asset Protection Insurance, is a form of credit insurance that plays a crucial role in protecting borrowers by covering the financial difference (‘gap’) between the actual cash value of a vehicle and the current outstanding balance on the loan or lease if the vehicle is declared a total loss.
Purpose
When you finance or lease a vehicle, there is often a gap between the vehicle’s market value and the amount of loan due. In the event of theft or a total vehicle loss, most base vehicle insurance policies only cover the market value (Actual Cash Value) of the vehicle at the time of the incident. GAP Insurance covers the difference, ensuring the borrower does not face financial setbacks.
Importance
Prevents Financial Loss: Shields borrowers from potential financial challenges due to the vehicle’s depreciation, resulting in balance remaining after the primary insurance settlement.
Accessibility: Generally offered and recommended when financing or leasing high-depreciation vehicles.
Ease: Facilitates smoother payoff of outstanding debts under adverse conditions without causing disturbance to the borrower’s financial status.
External References
The Federal Reserve’s Regulations on Insurance Practices provides clues about how GAP Insurance works in relation to loans and asset protection.
By covering the difference between the insurance settlement and your remaining loan amount, Personal GAP Insurance offers essential protection making vehicle loans and leases less risky and more manageable in cases of total loss.
