{"id":28285,"date":"2025-02-03T04:15:57","date_gmt":"2025-02-03T12:15:57","guid":{"rendered":"https:\/\/lenpenzo.com\/blog\/?p=28285"},"modified":"2025-06-20T13:30:08","modified_gmt":"2025-06-20T20:30:08","slug":"what-is-gap-insurance-for-cars-and-why-should-you-buy-it-3","status":"publish","type":"post","link":"https:\/\/lenpenzo.com\/blog\/id28285-what-is-gap-insurance-for-cars-and-why-should-you-buy-it-3.html","title":{"rendered":"What Is GAP Insurance for Cars and When Should You Buy It?"},"content":{"rendered":"

\"what<\/a>Many years ago, I worked with an old engineer who always wore a belt and suspenders. Always. One day I pointed out that fashion snobs consider a belt and<\/em><\/strong> suspenders to be a serious sartorial faux pas.<\/p>\n

He was unimpressed.<\/p>\n

“I know,” he said, “But I’m allergic to risk.” That remained a running joke between us until he retired a few years later.<\/p>\n

Some people believe that guaranteed asset protection (GAP) insurance is overkill too, but that’s not necessarily true.<\/p>\n

What is GAP Insurance?<\/h3>\n

GAP insurance covers the difference between what you owe on your car and what your insurance company would pay if you get in an accident and your vehicle is declared a total loss.<\/p>\n

Usually, when you get in an accident and your car is declared a total loss — or your car is stolen and never found — your auto insurance company pays the car’s blue book value minus your policy’s deductible<\/a>.<\/p>\n

Of course, there’s a catch: If the car’s loan or lease balance is more than the market value of the vehicle, then you<\/em><\/strong> are on the hook for the difference; it’s a scenario that’s typically — but not always — more common early in the life of a new car. For example, according to Edmunds, a brand new Nissan Z loses 9%<\/a> of its total market value in the very first minute it’s driven off the lot; after one year, it’s 19%.<\/p>\n

So, with that in mind, let’s assume you buy a brand new Nissan Z for $45,000. Let’s assume after adding taxes, license and insurance, the car’s cost increases to $50,000. If you used an auto loan to cover the entire amount, and then got in an accident five minutes after driving your brand new Z-car off the dealer’s lot, this is how your insurance company would settle up with you:<\/p>\n

Market value of your car: $40,950 (assuming 9% depreciation)
\nLess deductible: $1000
\nInsurance proceeds to you: $39,950<\/p>\n

Outstanding loan amount: $50,000
\nLess insurance proceeds: $39,950
\nAmount you owe the lender: $10,050 (!)<\/p>\n

I don’t know about you, but if I was stuck having to write a check to my lender for $10,050 after my car was totaled through no fault of my own, I wouldn’t<\/strong><\/em> be a happy camper. The good news is GAP insurance would cover that amount.<\/p>\n

Reasons for Buying and Avoiding GAP Insurance<\/h3>\n

There are other reasons to consider buying GAP insurance. For instance, if you:<\/p>\n