What Is Gap Insurance for Cars?

GAP, an abbreviation for Guaranteed Asset Protection, is a policy extension that allows you to receive compensation for the car value depreciation. Each day, the insured car value, fixed in the insurance agreement, is lowered by the amortized amount. This way, at the date of an accident, the insurance payment for the total loss can be decreased up to a quarter of the initially assessed value of the vehicle.

It’s a widely held view that a comprehensive insurance policy that does not include GAP is a universal solution for all car problems. On the one hand, this insurance helps to compensate for most of the damage, for example, in an accident. On the other hand, comprehensive insurance owners are often disappointed with the payout after a car loss, since the compensation received is not enough to buy a similar auto. Is it possible to “freeze” the terms to receive the initial price at any time during the insurance period? Let’s figure out what GAP insurance is and how it can help.

How comprehensive insurance works in the case of car loss

The maximum payment for the car loss is the car value, indicated in the comprehensive insurance policy at the moment of signing the insurance agreement. If the model is new, its cost is taken from the purchase and sale agreement, and a used car is assessed at the market price.
In case of vehicle loss, a car policyholder who has entered into a comprehensive insurance contract receives an insurance payment reduced by the depreciation.

This system incorporates a parameter known as a dynamic franchise: the longer the time since the insurance policy initiation, the lower the car's total value will be. According to the insurance agreement, the car value may decrease by a specified percentage over time (for instance, with each passing day/month of the policy) or based on the number of insured events.

What is GAP, and how to get it?

GAP is a separate coverage only available for those who are buying comprehensive insurance; it is impossible to insure your vehicle only for the guaranteed asset protection. But you can conclude such an agreement separately, anytime, and with any insurance company, when you have a comprehensive insurance policy signed.

Guaranteed asset protection locks in the value of your car at the time you purchase the insurance. GAP insurance protects you from owing money on your car loan after an accident or theft by covering the difference between the loan amount and the car’s worth. While the vehicle will continue to depreciate over time, any difference in value will be covered by the insurance company. If an insured event occurs, the owner of such a policy will receive the total amount fixed in the insurance agreement.

When is car GAP insurance payout provided valid?

The GAP is valid for the following insured events:

Car theft
Total loss of the vehicle

Standard insurance functions without it, but the client receives additional protection and financial benefits in cases mentioned above. With GAP, in case of theft, or the total loss, the policy owner will receive the vehicle amount in whole, with no deduction for car depreciation.

How long do you have to get insurance?

When purchasing a new or used car, you must have insurance in place to register it. Typically, you have a grace period of about 20 days, depending on your state. In Indiana, the car insurance grace period is 2 to 30 days, depending on the insurance company.

Each state has its regulations, but generally, if you have an existing car insurance policy for the vehicle you are trading in, it will temporarily cover your new car for a specified number of days. This grace period usually ranges from seven to 30 days. It's advisable to inform your insurance company on the same day of your purchase so they can add your newly acquired used car and remove your old vehicle.

If you don’t have car insurance at the time of purchase, you must obtain it before you can legally drive the car as its new owner.

You can conclude an additional contract simultaneously with an insurance policy or purchase GAP separately during the first year of owning the car. The insurance company may offer to add the function to the contract term. In the following years, you can only renew your existing policy.

You can additionally issue GAP at any insurance company, regardless of where you purchased the insurance policy.

Can I refuse GAP?

GAP is not an independent type of insurance but an extension to the insurance coverage. GAP extra coverage is up to you, except when it is a bank's demand for the car loan.

Is GAP insurance worth it?

The first and foremost reason for GAP insurance is that the paid amount is not reduced, as in the standard policy. Premium cars lose value quickly: in the first year, depreciation reaches 25% of the car's price, in the second year - another 15%, and in the third - about 10%. GAP is the way for the policyholder to receive the initial price in the event of a car loss.

According to insurers, cars with powerful engines most often get into a "total" accident, so fans of fast driving should think about such an extension of the standard insurance policy.

Who is GAP insurance suitable for?

Guaranteed Asset Protection insurance is especially relevant for those who financed a car. If the vehicle is stolen or there is a serious accident, the compensation under comprehensive insurance will barely be enough to pay off the debt to the bank. And there will be nothing left to buy a new car. With the GAP coverage insurance, the full amount will be reimbursed, and the owner will not lose anything.

GAP coverage insurance is advantageous for premium cars. The more expensive the vehicle, the more significant the difference between the purchase price and the depreciated market value.

You can also buy GAP for a used car, but here insurance companies set requirements for their age. Usually, cars should not be older than 5 years, but some insurers allow you to issue the policy extension for models up to 12 years old.

Why would a gap claim be denied?

Your GAP insurance claim may be rejected if your vehicle wasn't totaled, your policy lapsed or was inactive, or the damage was intentional or fraudulent.

Is it possible to do without GAP?

If you are a cautious driver and park your car in a secured lot, which may help safeguard against the total loss of your vehicle, the GAP option might be less beneficial for you. In the event of an insured incident, you could manage with repairs instead. For the owner’s peace of mind, considering that we do not always park only in protected places, GAP is quite helpful.

Diligent market analysis and guidance from our insurance specialists will help you select the most advantageous insurance coverage. Browse the Indy Auto Man car inventory in Indianapolis and reach out to us to explore all available options.