Do I need to purchase GAP insurance if buying a used car?
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Asked June 9, 2014
GAP is short for General Auto Protection, and is required by most auto dealers and lenders. Whether or not you need GAP insurance depends on whether or not you own the car, not whether the car is new or used. If you pay cash for the vehicle, GAP insurance will not benefit you in any way.
The purpose of GAP insurance is to pay the difference between what you owe on a totaled vehicle and what your insurance company pays. There is a much higher difference in this amount for a new car, because the vehicle depreciates very quickly in the first year, while an older car will not lose value as quickly. Once you have paid off the loan on the car, there is no need for GAP insurance and having it will not provide you with any resources.
For a dealership, requiring you to have GAP insurance is simply a way to protect their own investment. If your vehicle is totaled, the insurance company only pays the depreciated value, not the full loan amount. Since this type of coverage would leave you owing for a vehicle you no longer have the use of, or leave the dealer wanting for the remainder of their investment, GAP insurance is used to fill the gap between your coverage and what you owe.
Whether the car is new or used, GAP insurance is a good idea if you still owe money on it. Even if GAP insurance is not required by the place where you bought the car, failing to have it could lead to severe financial problems for you later. Since the cost of GAP insurance is very low, adding the coverage to your policy is usually thought of as the best way to protect your finances against the unexpected loss of the vehicle.
Answered June 9, 2014 by Anonymous