With insurance rates on the rise tracking with costs of repairs and interest rates, making decisions about how to protect an investment as large as a vehicle can seem a daunting, intimidating task for the average consumer.
Different and even separate from traditional insurance, GAP insurance, or guaranteed asset protection insurance, covers drivers who may owe more on their car loan than their car is actually worth, and covers the difference. It most frequently comes from the dealer at the time of purchase, rather than a traditional insurance agency, although some do offer it.
Car finance expert Billy (@billythecarkid on TikTok) has taken the time to break down who GAP insurance might be best suited for, and why salespeople at a dealership might be recommending it to their customers.
What is a GAP insurance policy?
"What's GAP?" he says in the video. "It stands for guaranteed asset protection insurance, and what it basically does is covers your butt if you bring some negative equity or don't put any down payment down when you purchase your vehicle. Most of us when we leave the dealership are in a negative position, we are upside down in our loan the moment we drive off the lot. We have to account for depreciation and the actual value of the vehicle and not what the dealership charged us. When we take those things into consideration, most of us are flipped and if we're flipped, we need GAP insurance, plain and simple."
The extra insurance will cover what a traditional insurance policy does not, in the even of an accident, he explains.
"Let's say you don't get the coverage even though the finance guy said you're above 80% loan-to-value, it would make sense to get the GAP coverage," he says. "You opted out, you left the dealership, you got into a wreck and your insurance company cuts you a check for only a portion of what you owe. That's because they're only on the line for a portion of what you owe. They're not on the line for the extra taxes and fees and overpricing the dealership charged you at time of purchase. See, the insurance company is going to use comparables and give you the actual cash value of your vehicle and not what you owe. They don't care if you decided to bring a bunch of negative equity into a new loan or you didn't buy your car smart. That's not on them."
How much should a GAP insurance policy cost?
As far as what customers should expect to pay in total for their GAP insurance policy through the dealer, Billy says he would never pay more than $700 to $800 per year for this kind of coverage.
"Guys, I would never pay a dollar more than $700, maybe $800 if I wast throwing the finance manager a bone," he says. "Any more than that is highway robbery, and I wouldn't pay it. Your finance manager is going to offer this as a non-negotiable, 'this is just the price that everyone gets that you're expected to pay,' but now that you have this intimate knowledge that you shouldn't pay any more than $600 or $700, stick to your guns and your finance guy will definitely come down."
The Daily Dot has reached out to Billy via TikTok direct message as well as comment on the video.
Some viewers recommended getting gap insurance based on their own experience with car accidents.
"I would get gap insurance," one commenter wrote. "Just totaled my pilot and they paid it all off after insurance! 100% recommend."
"In 2014 I was hit head on, totaled my car that I bought brand new 2 weeks prior," another said. "Gap saved me. It had already depreciated $4500."
"They pay the value of the same car but two years newer and 30k less miles," a third added. "I owed 19k they paid me 26k. Got my down payment back."
Others recommended seeking GAP insurance from different providers, as they found cheaper rates outside the dealership.
"I got gap insurance from my union bank," one commenter wrote.
"I had Gap insurance already through my insurance," another commented. "Got in the finance office he pressured me to get theirs instead. Big mistake!"
"I work at a credit union we finance it into the loan," a further user said. "It’s $250 I work on total losses get the gap."
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