Is it a good idea for drivers to buy GAP insurance?

Guaranteed Asset Protection – or GAP insurance – is offered by nearly all auto insurance companies in the U.S. It is a type of optional supplemental coverage that covers the "gap" between the amount you owe on your vehicle and its actual depreciated value.

It doesn’t matter if you're leasing your vehicle, you have an auto loan, or a refinance. GAP insurance can help you save money – even thousands of dollars – on the off chance your car is totaled or stolen, and you still owe more than the car is worth.

PICKING NEW CAR INSURANCE? HERE ARE 6 TYPES OF COVERAGE POLICIES

But is GAP insurance worth the money? That depends.

What is GAP insurance?

In some states, an auto dealership or lender must offer GAP insurance when you purchase a vehicle. However, in most states, it's an optional purchase. Vehicles depreciate, so the value of the vehicle at the time of sale won’t be the same if you're in an accident and your vehicle is totaled.

If you make the personal finance decision to buy collision coverage on your auto insurance, which is typically required if you have a car loan, it will only cover the car’s value at the time of the accident, not what you paid for it. So, if the amount owed on your car loan is $13,500, but the car is now valued at only $9.300, you will still owe $4,200 even though your car is now scrapped metal.

HOW TO CHECK IF YOUR CAR INSURANCE PAYMENT IS TOO MUCH

Do you need GAP insurance if you have full coverage?

No. It’s just the opposite. You need collision and comprehensive insurance coverage to add GAP insurance to your policy. If you plan to drive on a public road, you must have your state’s minimum requirements for insurance at the very least. If you apply for a car loan, your bank, credit union, or other financial institution will likely require comprehensive and collision, along with liability insurance coverage.

GAP insurance is supplemental coverage and optional in most cases. However, if you lease your vehicle, your lender may require you to purchase GAP insurance as part of the lease agreement.

How much does GAP insurance cost?

The cost for GAP insurance varies from one insurer to the next. But overall, it is relatively inexpensive. One insurer may offer lease and loan coverage for as little as $5 per month. Another company may charge $20 per year, while still another charges .45 per day. It’s probably safe to assume you will pay between $400 and $600, which covers the entire term of the loan.

3 TIPS FOR BUYING CAR INSURANCE ONLINE

Is it worth getting GAP insurance?

You may want to consider GAP insurance if:

• The term of your car loan is five years or longer.
• You are paying a high-interest rate, making it difficult to pay down the principal on your loan.
• You made a low down payment or no down payment.
• You bought a vehicle that depreciates quickly.

Compared to what you may pay if your car is totaled in an accident, GAP insurance is very affordable and worth getting for financial protection. If you didn’t add GAP coverage when you purchased or leased your new vehicle, your lender might let you add GAP coverage to your current insurance policy. Most major insurers offer GAP coverage, as do online insurers.

LOOKING FOR AFFORDABLE CAR INSURANCE? TAKE THESE 5 STEPS NOW