Car insurance provides financial protection for you by covering the cost of your vehicle’s value in the event of an accident.
But what happens when that value is less than what you still owe on the vehicle? That’s when gap protection, or a gap waiver, comes into play.
Gap Protection Explained
When you buy or lease a vehicle, its value can quickly depreciate. In fact, a car can lose up to 30 percent of its original value within the first year it’s on the road.
With a standard car insurance policy, your vehicle is covered for the amount of its value at the time of a claim, not its original market value. The “gap” in gap protection describes the difference between what you still owe on the car and the car’s current value, minus the cost of pre-existing damage.
This very affordable protection usually only adds a few dollars to your car’s monthly payment.
An Example of Gap Protection
Let’s say you financed a car for $28,000. After a year and a half of driving it, you get into an accident and the car is determined by your insurance company to be totaled. The current value of the car after a year’s worth of depreciation is $20,000. However, you’ve only made 18 monthly payments on the car and still owe $24,000 on the loan.
So you owe $24,000 to the bank or loan company for the vehicle, but your insurance company will only reimburse you for $20,000. Your “gap” is $4,000, and you must pay that difference yourself back to the bank.
Gap protection would cover that $4,000 difference for you, plus up to $1,000 of your deductible, relieving you of an expensive and unexpected out-of-pocket cost.
When to Buy Gap Protection
Here are some instances where it would be a good idea to purchase gap protection:
- When making a down payment of less than 20 percent.
- If you are financing for 48 months or longer.
- When rolling over negative equity from an old car loan into a new one.
- If you like the peace of mind from knowing you have protection from depreciation costs in the event of a total loss.
Gap Protection and Zimbrick Automotive
Zimbrick Inc. sells gap protection through our Finance and Insurance professionals at the time of delivery. We can build the cost of the insurance right into your monthly payment.
Shop our selection of new vehicles for sale or learn about our body shop services to see why Zimbrick Automotive is the preferred destination for car owners and shoppers in Madison, WI.
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