Heard of it, but not sure what GAP Insurance covers? You’ve come to the right place. We will explain 1) what GAP Insurance is and 2) why you might want to consider purchasing GAP Insurance
GAP Insurance definition: Guaranteed Auto (or Asset) Protection is a type of car insurance which protects your finances when a loan is taken out to pay for your car.
Let me paint a picture…..
An unexpected event occurs (accident, fire, flood, theft of your vehicle) and your vehicle is ruined. Your insurance company determines that the car is worth $13,000. This is less a lot less than you thought it would be. Why is that? You bought a new car, and it quickly depreciated in value over time.
You still owe $17,500 because you took out a risky long-term loan over 7 years, meaning
$17,500 – $13,000 = $4,500
What you owe – car worth = Amount you still owe
GAP Insurance protects you and will cover this $4,500 – this is the “GAP”.
What GAP Insurance covers
GAP Insurance is there to protect you from paying the loan off on a car you have unfortunately just lost. Chances are if you had to take out a big long-term loan to buy your new car, suddenly having to cough up $4,500 or so would really hurt your bank balance – if not be impossible.
Taking out a long-term loan is popular in Canada. CBC News reported that in 2018, 55 % of all new car loans were for at least 84 months (7 years). Unfortunately, people forget that having a loan over a long number of years does come with risks.
What else do I need to know about what GAP Insurance covers?
- GAP Insurance is not just available if you purchased your vehicle, it also includes leased vehicles.
- Traditionally, GAP Insurance was only sold through the dealer when purchasing a vehicle. However, this was expensive, the dealer was often not knowledgeable about the product and they also were not the ones who would handle your claim.
- Obvi has completely changed GAP Insurance; by bringing the sales process online and cutting out the middleman, consumers can save up to 70%, there is no sales pressure and confusing technical jargon and consumers get a better product at a fair price.