Why Car Buyers Should Consider GAP Insurance

Why Car Buyers Should Consider GAP Insurance

At RedStone Law, Attorneys Mike, Morgan & Mark advise clients across Kentucky and Tennessee that while purchasing a new or financed vehicle is exciting, it also carries financial risks. One of those risks is owning more on the loan than the car is actually worth, a situation that GAP Insurance is designed to address.

What GAP Insurance Is

GAP (Guaranteed Asset Protection) insurance covers the “gap” between what you owe on your auto loan and what your insurance company pays if your vehicle is declared a total loss. Standard collision or comprehensive coverage pays the car’s actual cash value (ACV), which drops quickly. That decline can leave you owing the lender thousands of dollars more than the payout.
For example:

• Amount owed on loan: $25,000
• Vehicle’s market value: $20,000
• Gap you’d owe: $5,000 — GAP insurance fills this shortfall.

Why It Matters Now More Than Ever

• Cars depreciate rapidly; some lose 20%+ of their value in the first year.
• Longer-term loans (60 + months) mean you may owe more than the car is worth for an extended period.
• Small down payments or rolling negative equity from a previous vehicle can increase your exposure.
• If you’re leasing or financing a vehicle, GAP insurance may be required by the lender.

How to Decide If You Need It

Ask yourself:

• Did you put less than 20% down?
• Is your loan term 60 months or longer?
• Did you roll over previous loan debt into this vehicle financing?
• Do you owe more than the car’s value?
  If you answer yes to any of these, you likely benefit from GAP insurance. Conversely, if you paid cash, made a large down payment, or your car holds its value well, you may not need it.

How RedStone Law Can Help You

At RedStone Law, our team:

• Reviews the financing and insurance paperwork with you to identify exposure.
• Explains the full implications of being upside-down on a vehicle loan.
• Works with your insurance and loan providers to ensure proper coverage or claims processes are followed.
  If you’ve been injured in a crash and your vehicle was involved, we can also help you understand how GAP insurance may impact your overall case and compensation strategy.

Final Word

GAP insurance isn’t just another add-on—it can be a vital safety net when your vehicle is financed and depreciation works against you. Before you drive off the lot or accept a loan, give the “gap” the attention it deserves.