Insurance & Financial Services

GAP Coverage Protects What You Owe On Your Vehicle

By Kimberley Edgar

Car Buying

GAP coverage is worth considering when you’re purchasing a new or used vehicle.

When one man looking to buy a set of wheels heard about guaranteedasset protection, he knew it was for him.

“I got it because it sounded like a good fallback plan,” said Jesse Alexandre, a North Providence, Rhode Island, resident.

And when Mr. Alexandre was involved in a crash that totaled his 2002 Honda, it was.

Guaranteed-asset protection — better known as GAP coverage — ensured he could replace his vehicle with a 2002 Toyota Camry without worrying about having to dip into his pockets or repay a hefty loan first.

“I basically didn’t feel the effects of the crash at all,” Mr. Alexandre said.

He isn’t the only one who’s discovered the benefits of GAP coverage.

More and more people looking to take advantage of significantly lower auto-loan interest rates this year are including GAP in their financing and refinancing packages.

And at $379, GAP is a must-have. “GAP is probably the single easiest product a member can include and purchase in his or her auto loan, and it protects the member,” said Patrick Sullivan, AAA Financial Services Manager.

GAP kicks in when a vehicle is totaled or stolen, and its actual cash value falls short of the amount the borrower owes on the loan or lease balance.

The deficiency, or gap, may result in financial hardship for the borrower and could even jeopardize repayment of the loan and replacement of the vehicle.

GAP coverage is designed to relieve the borrower of the responsibility for the remainder of the loan or lease balance.

It will cover the difference between the borrower’s outstanding loan or lease balance and the vehicle’s actual cash value, which reflects depreciation and is determined by the primaryinsurancecompany settlement less any deductions.

“People don’t realize when you put money down on a car, the value will go down, and the miles you drive impacts the car value as well,” said Mr. Sullivan.

Take a vehicle with an actual cash value of $11,000 and an insurance deductible of $1,000. The insurance settlement for that totaled or stolen vehicle will be $10,000.

But if the outstanding balance on the loan is $15,000, the borrower will be liable for $5,000 unless GAP coverage is worth considering when you’re purchasing a new or used vehicle. that person has GAP, which would cover that balance.

Some people might find themselves with as much as an $8,000 shortfall, Mr. Sullivan said.

Members financing or refinancing vehicles with AAA auto loans are eligible to buy GAP at $379 versus paying up to $750 at a dealership, Mr. Sullivan said.

AAA’s refinance rate is at 4.54 percent as people look to refinance vehicles bought at higher rates in the last couple years.

“With rates going down dramatically over the last couple months, people are looking for lower rates and lower payments,” Mr. Sullivan said.

“With the way inflation is going with the price of fuel and groceries, they need every penny they can get,” he added.