GAP (Guaranteed Asset Protection) Insurance
Otherwise known as guaranteed asset protection coverage, GAP insurance is a policy which is designed to bridge the "gap" between the actual value of a vehicle and any balance which is still owed (in the case of financing, for instance). While this policy is indeed important for certain vehicle owners, there are some factors to consider before opting for GAP insurance. Let us have a closer look.
Types of Policies
There are two main types of GAP insurance plans. The first is what is known as a Return-to-Invoice policy. This accommodates for the disparity between the invoice price owed to a finance company and any insurance payout that can be expected in the event of an accident or theft. The second type is Vehicle Replacement Insurance (VRI). This is only possible with new cars and as the name hints, it will cover the complete cost of purchasing a new vehicle.
One of the hallmarks of any GAP policy is that interest rates are known to be high. Although this is generally made clear beforehand, variable rates can negatively affect the overall value of the plan. Furthermore, they can make it difficult to meet monthly payments should one's budget become tight. It is therefore essential to determine these rates as much as possible in advance.
Third-Party Versus Dealerships
It is common for a vehicle dealership (perhaps the same one which is providing the financing) to offer a GAP policy. However, it should be known that their rates can be much higher than those offered by a third-party provider. This is due to the fact that there is a great deal of competition within the commercial GAP insurance business. So, it is always wise to compare and contrast different policies and rates before deciding upon which source to choose.
Another factor is to consider the amount of time that one wishes to choose a policy for. Generally, this can range for between one and five years. Longer policies will tend to offer lower interest rates, but these may vary as well (as mentioned with the question of variable rates earlier). Thus, any fluctuations must be balanced against the overall pricing package.
These are some of the main points to consider when choosing a GAP insurance policy. Although this protection can indeed be worthwhile, a bit of forethought will enable the consumer to make the best possible choice.