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In the context of insurance, “gap” stands for guaranteed asset protection. Gap insurance is an optional type of auto coverage typically discussed in connection with newer cars. If an accident or another incident results in a total loss vehicle, gap insurance helps to cover the difference between the insurance payout and the Georgia vehicle owner’s outstanding car loan.
What is gap insurance?
Suppose your car is totaled in an accident. Or it is destroyed by a fire or flood. Or it is stolen. Gap insurance could help cover the difference between the amount your car insurance pays out after a covered claim and the remaining amount you owe on your car loan.
This financial shortfall may exist because a typical auto insurance policy pays the car’s actual cash value or the depreciated value, which might not align with the outstanding loan. This is particularly relevant if you are purchasing a brand-new vehicle that loses significant value once it leaves the dealership lot.
How does gap insurance work in Georgia?
Gap insurance in Georgia does not assure full compensation in all situations. It is important to know precisely how and when gap coverage comes into play.
Gap insurance does not apply to all vehicles; it typically covers brand-new vehicles and those up to one model year old. Often, gap coverage will be purchased in conjunction with your car loan. That said, gap generally does not cover situations where you owe more on a loan because you have traded in a vehicle you still owe money on.
Also noteworthy, gap coverage differs from new car replacement coverage. Gap will not help to cover rentals or towing either, and it is not an extended warranty. Gap insurance doesn’t cover anything except the difference between your outstanding loan balance and your car’s value at the time of the claim.
When do you use gap insurance?
Gap insurance comes into play when there is a total loss of your vehicle. This typically occurs as the result of an accident in which your car is deemed totaled by your insurance carrier. However, other events, like theft, can also lead to a total loss.
For example, suppose your car is stolen and not recovered or destroyed in a tornado or another natural disaster. In that case, you should recover the car’s market value just like you would with a totaled vehicle from an accident. If this amount is less than your outstanding car loan, gap coverage could make up the difference.
Gap insurance vs other coverages
Because gap insurance is a limited form of coverage for a specific situation, it should not be confused with liability coverage or the two other most common types of coverage: collision and comprehensive.
|What it covers||The difference between total loss recovery and the outstanding loan on the vehicle.||The cost of repairs caused by events other than an accident, such as natural disasters, fire, theft and vandalism.||The cost of repairs caused by a single-vehicle accident or collision with another vehicle.|
|Who offers it||In Georgia, you can purchase gap coverage from the car dealer that sold the car, your lender or your auto insurer (if offered).||Comprehensive coverage is a standard offering from most auto insurers.||Collision coverage is a standard offering from most auto insurers.|
Where to buy gap insurance in Georgia
You can buy gap insurance from several insurance companies in Georgia. It’s a common offering since many car buyers finance their purchases. Because dealers and lenders have a monetary interest in your vehicle if it’s financed, both lenders and dealers also often sell gap insurance.
Gap insurance companies in Georgia
Not every auto insurance company in Georgia offers gap insurance, though. Geico, for example, does not offer gap coverage to its policyholders. However, most of the largest car insurers by market share do, as do dealerships and finance companies.
Some specific examples include:
- AAA: The carrier does offer gap coverage provided that the insured vehicle has comprehensive and collision coverage. Additionally, if the insured vehicle is deemed a total loss, AAA waives up to $1,000 of the policy deductible.
- Progressive: Progressive also provides gap insurance to drivers who carry comprehensive and collision coverage. Called “loan/lease payoff coverage,” it typically costs an average of $5 a month.
- State Farm: State Farm offers a “Payoff Protector” option, which is essentially gap protection for those with a car loan from a State Farm bank. Buyers are usually eligible even if their required full coverage auto insurance policy is provided by another carrier.
Many dealerships offer gap coverage in Georgia, too, such as:
- Cobb County Toyota: Gap coverage can typically be included as part of an auto loan, increasing the monthly payment on the loan by a modest amount.
- IQ Autos: IQ is a large dealership in Georgia (and other states) that offers a variety of gap options as part of its sales process.
Frequently asked questions
The cost of gap insurance can vary based on several factors. One of the most significant influences is whether you buy gap insurance from a dealership or from a car insurance company. Generally, gap insurance from dealerships or lenders costs more than gap purchased directly from a car insurance company. Experts recommend shopping around to find the best price.
Georgia law does require a minimum amount of car insurance coverage. However, gap insurance is not legally required. That said, if you financed your car purchase, you may be obligated to maintain gap insurance by your lender or lessor. Even if it isn’t required, drivers may want to research and consider this type of coverage when purchasing a new vehicle to protect themselves financially should the vehicle be totaled.
Yes, typically you will be able to cancel gap insurance if you feel that it is no longer beneficial. This might occur if you have paid down your loan balance to the point that it’s less than the vehicle’s actual cash value. Be sure to check with your gap insurance provider to verify any cancellation requirements.