What is G.A.P.?
G.A.P. stands for Guaranteed Asset Protection. It’s an optional insurance policy that covers the “gap” between the amount owed on a vehicle loan or lease and the vehicle’s actual cash value (ACV) in the event of a total loss due to factors like theft or accidents. Essentially, if your car is deemed a total loss and your insurance payout doesn’t cover the remaining loan or lease balance, G.A.P. insurance steps in to bridge that financial gap.
Purpose of G.A.P.
The primary purpose of G.A.P. insurance is to protect consumers from financial hardship in the event of a total loss of their vehicle. Without G.A.P. coverage, borrowers could find themselves owing thousands of dollars to the lender or leasing company even after their insurance payout.
Is G.A.P. Required by Most Lenders?
G.A.P. insurance is typically not required by lenders, but it’s often recommended, especially for borrowers who are financing a large portion of the vehicle’s purchase price or who have longer loan terms. While not mandatory, lenders may offer G.A.P. insurance as an option during the vehicle financing process. Also, many dealerships may misrepresent that a G.A.P. policy is required as a condition to obtain financing by a bank.
Is Insurance Coverage Necessary for G.A.P. to Cover a Claim?
Yes, G.A.P. insurance typically requires that the borrower have comprehensive and collision coverage on their auto insurance policy. This is because G.A.P. insurance is designed to work in conjunction with your primary auto insurance coverage. If you don’t have the necessary insurance coverage, your G.A.P. insurance claim may be denied.
Can a Consumer Cancel a G.A.P. Policy?
Virtually every GAP policy will have a cancellation policy. Consumers should review the terms of the GAP contract for information on how to cancel the GAP policy.
What Happens if a Dealership Doesn't Pay the G.A.P. Premium for the Consumer?
If a dealership fails to pay the G.A.P. premium on behalf of the consumer, it could leave the consumer unprotected in the event of a total loss. In such cases, the consumer will end up with significant exposure in the event their financed vehicle is subject to a total loss accident. Sometimes this happens due to a mistake or oversight. Other times, a dealership may intentionally pocket the GAP premium to make additional profit in the transaction. This is known as GAP premium fraud.
What Can a Consumer Due if a Dealership Doesn’t Pay a G.A.P. Premium?
If a dealership fails to fund a G.A.P. policy despite charging a consumer for the policy, a dealership will likely be responsible to cover the cost of the “gap” between the amount owed on a vehicle loan or lease and the vehicle’s actual cash value (ACV) in the event of a total loss. A consumer is entitled to pursue these damages in court and will be entitled to recover their attorney’s fees from the dealership.