New cars can depreciate as much as 50-70% in the in the first 2-3 years. As a result, insurance payouts can be much lower than the vehicle purchase price-even for those with full coverage. GAP (Guaranteed Auto Protection) insurance is additional protection to cover this "gap" between what one owes on a financed vehicle and its actual cash value, which is usually lower. As an example, let's say you borrow $26,000 for a new car and its totalled one month later. In the eyes of the insurance company, that vehicle has likely depreciated up to 30% (or about $7800) immediately after you drove it off the lot. WIthout GAP insurance, you could pay the full difference between what you owe to your lender and what your insurance company pays out to you! You can see why it's important. Please note that GAP insurance is cancelled after refinancing a vehicle. Those who plan to refinance for greater savings, and are currently covered, will need to reapply to maintain it.
