Guaranteed Auto Protection Insurance

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Zaneta Wood, Ed.S. has over 15 years of experience in research and technical writing bringing a keen understanding of data analysis and information synthesis to reach a wide variety of audiences. She studied adult education and instructional technology at Appalachian State University as well as technical and professional communication at East Carolina University. Zaneta has prepared technical p...

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: May 29, 2020

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Here's what you need to know...

  • Refund car insurance is known as Guaranteed Auto Protection (GAP)
  • GAP insurance will help you recover funds you could lose in an accident
  • GAP insurance is sometimes called auto loan-lease coverage and loan-lease pay off coverage
  • Your insurance company will charge an average of $20 per year for GAP coverage

Guaranteed Auto Protection covers the gap between what your auto insurance compensates when a vehicle is stolen or written off as a total loss after an accident or collision still owed to the bank.

GAP is often sold along with collision and comprehensive coverage to coverage injuries and damage to the vehicle as an optional feature.

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History of Guaranteed Auto Protection Insurance

In the past, there was not a need for insurance protection. Buyers would pay about a third of the price of their car as down payment on insurance which meant a gap was not likely to occur.

However, now leasing programs tend to offer better deals with little or no down payments and longer terms for financing.

These programs allow buyers to finance the entire amount of the vehicle, so the gap is more likely to happen if there is a total loss.

For finance contracts where 79 percent or less of the MSRP of a brand new car or the average retail cost based on NADA of a used car is bankrolled, some GAP provisions still exist that make them ineligible for such agreements.

In states such as Indiana, for example, all GAP programs must be approved by the Department of Financial Institutions to be offered at an extra cost.

Generally, all approved programs have a “free look” period of 2 to 3 months, which allows the buyer the option to cancel the plan.

If the plan is paid in full, often times, many programs permit the disbursement of a rebate.

In states other, GAP insurance is handled in much the same manner as life insurance and disability insurance policies.

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What is Guaranteed Auto Protection?

In order to utilize Guaranteed Auto Protection insurance coverage, your vehicle must be written off as stolen or as totaled.

GAP insurance will cover the difference between the balance you still owe on the vehicle, and what your insurance company is willing to pay for the loss of the vehicle.

Most GAP insurance plans take care of the car owner’s deductible, usually between $500 and $1000.

For example, you purchase a vehicle for $30,000. Twelve months after your purchase, you get into an accident, and the car is written off as a total loss.

The market value for your vehicle is $22,000, but you still owe $27,000.

This leaves a gap of $5,000. Your GAP insurance would pay the $5000 difference so that you do not have to pay out of pocket.

How are claims handled regarding a Guaranteed Auto Protection Plan?

If your car is stolen or is a total loss in an accident, you should first alert the broker who handled writing your GAP insurance policy. The broker will then contact the provider to notify them of your loss.

If you need to purchase a Guaranteed Auto Protection insurance plan, the price of the GAP insurance policy must be included in the cost.

If you make a decision to buy GAP insurance through an auto dealer, be certain that they forward your remitted payment and that you get a receipt for this payment.

If you believe that your GAP insurance policy wasn’t put into action per the signed agreement, you can get in touch with the state government office that deals with GAP coverage to make a claim.

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