Working hard to save up money for your first car purchase is quite a feat but if you don’t have the right insurance to protect your investment, you may end up losing money if something happens to your car.
GAP is not just a clothing store at the mall. Guaranteed Asset Protection (GAP) is a valuable insurance policy product that ensures your new ride is extra protected.
Why buy GAP if I already have auto insurance?
GAP literally fills in the gaps beyond what your insurance company will cover if your automobile is totaled in an accident. Let's say you had some bad luck on an icy road one evening and your shiny new car is no more. Thankfully, you're okay, but your car didn't fare so well against the car that swerved in front of you.
After your insurance company sends someone out to verify and assess the damage to what is left of the car, they'll provide you with the final valuation of what they are going to pay. The grand total is $18,000. Sounds great, right? Sure, as long as you don't have a loan on the car with a greater balance.
For example purposes, we'll say the loan balance is $21,000. Yikes, that's a $3,000 remaining balance after the insurance company pays their portion. If you're part of the 27 percent of U.S. adults that have nothing saved for emergencies, this can be financially devastating.
This is where GAP can save the day! A standard GAP policy will cover the $3,000 remaining balance so you won't have to borrow money from your parents or local credit union, or worry about paying that balance off. If you are lucky enough to have purchased GAP from your credit union, many offer GAP Plus, which gives you an added bonus of $1,000 toward your next auto loan at the credit union. It also allows for skipped loan payments if your credit union offers a “skip-a-payment” program.
If you purchase your car from a dealership, they also provide GAP but the cost is often more than a policy purchased through a credit union. Plus, it won’t generally come with the “next car” bonus.
What else should I get to protect my car?
A warranty is a great way to protect your car, especially if you intend to keep it for as long as possible. Before signing the first warranty contract you see, make sure you take the time to compare various warranty products and what exactly is covered. Comparing cost alone is not the best method since there are different tiers of what is covered for repairs. Some tiers will cost more but cover a wider range of repair issues. In addition, some warranties have different deductible amounts, mileage limits, and term limits.
Make sure to always check with your credit union for their warranty products as many include benefits of rental car reimbursement, 24 hour roadside assistance, and transferability to another person if you sell your car to another person.
Sounds like that covers it, right?
Almost! Don't forget to ask about Credit Life and Credit Disability insurance products. These will not directly cover your car in terms of repairing it but it will help protect your credit. Credit Disability will cover your car payments in the event you become sick or injured while working at least 25 hours per week. Credit Life will pay off your loan if you pass away.
It's always best to check with your credit union loan officer for information on all of these valuable products to protect you and your new car to keep you on the road to financial success.
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