GAP Insurance – Unfortunately many people are either unaware of this form of insurance or elect to decline it when purchasing a new or used vehicle. So-called GAP Insurance, short for Guaranteed Auto Protection or Guaranteed Asset Protection, provides coverage of the difference between the actual cash value of a car and the balance owed on the loan in case the vehicle is totaled in a crash. The reason that this situation occurs is that the value of a car, especially when purchased new, declines more rapidly than the reduction in the amount owed on the loan. Thus, when an accident happens, the owner of the car may end up with no vehicle, but still owing a considerable amount on the loan.
We strongly recommend that people involved in the purchase of a new vehicle seriously consider purchasing this type of insurance. Too often in the cases we see in our office the client who has been injured in an accident is faced with the additional burden of dealing with a “new” debt to the bank or financing agency. The insurance company for the person responsible for the wreck will normally pay the current market value of the vehicle, but this is often not enough to pay off the loan. For a small premium when the car is bought this problem can be avoided.