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What is loan/lease GAP coverage? | Michigan Auto Insurance

posted Nov 3, 2016, 8:59 AM by Jason Grubbs   [ updated Dec 19, 2018, 12:49 PM ]
It's frequently said a new car depreciates the most the moment you drive it off the lot.

There is certainly some truth in this statement: According to Carfax, most new vehicles depreciate in value 10% the moment you purchase a car and drive it off the lot, and the average car will further depreciate another 10% in the first year of ownership.

For this reason along with loan terms extending 5 years or longer, financing offers with low (or no) down payment, and buyers who finance more than just the purchase price of a vehicle (taxes, license, registration, service plans, extended warranties) it's likely new car buyers can quickly be in a situation where they owe more than their car is worth.

GAP Coverage - Michigan Auto Insurance

The problem is if your car is totaled in an accident your auto insurance company is only responsible for paying the actual cash value of your car.  If this is less than what you owe you can be stuck with a gap, the difference between what you owe and what your car is worth, which can put a serious dent in your pocketbook.  Imagine not only losing your vehicle if it's totaled in an accident, but also still owing thousands of dollars.

This is where GAP coverage, also referred to as loan/lease insurance, provides valuable protection.  When you purchase this coverage option your auto insurance company is agreeing to pay your loan or lease balance, even if this is more than the value of your vehicle.