Data provided by Edmunds (an online resource for automotive information) reveals that the average new vehicle loses 30% of its value in the first year, and will only be worth about half its value by year three. Because regular automobile insurance will only pay the vehicle’s current cash value, not the current loan balance, vehicle owners with leases and loans may find that the payout for a total loss or theft falls short of what is needed to pay off the balance of the lease or loan. To guard against this shortfall, “Guaranteed Asset Protection” (GAP) plans cover the distance between an outstanding auto loan or lease and what an insurance company deems the vehicle’s value to be.
NOTE: GAP insurance can usually be purchased for less from an insurance agent than from an auto dealership. Those who own their vehicles outright do not need GAP insurance