Bank Of America's Auto Loan Gap Insurance: What You Need To Know

Gap insurance, or guaranteed asset protection, is an optional form of coverage that can be added to an existing car insurance policy. It covers the difference between the amount owed on a vehicle and its actual cash value in the event that it is stolen or declared a total loss. Bank of America does not appear to offer gap insurance on auto loans.

What is gap insurance?

Guaranteed Asset Protection (GAP) insurance is an optional product that covers the difference between the amount you owe on your auto loan and the amount your insurance company pays out if your car is stolen or totalled.

When you buy a new car, it starts to depreciate in value as soon as it leaves the car lot. Most cars lose 20% of their value within a year. Standard auto insurance policies cover the depreciated value of a car, meaning they pay the current market value of the vehicle at the time of a claim. If you have only made a small down payment, in the early years of the vehicle's ownership, the loan amount may exceed the market value of the vehicle.

GAP insurance covers the difference between what a vehicle is currently worth (which your standard insurance will pay) and the amount you owe on it. It is a good idea to consider buying GAP insurance if:

• You made less than a 20% down payment
• You financed for 60 months or longer
• You leased the vehicle (GAP insurance is generally required for a lease)
• You purchased a vehicle that depreciates faster than average
• You rolled over negative equity from an old car loan into the new loan

Your car dealer may offer GAP insurance on your new vehicle, but it is also available from most car insurers, who typically charge less than the dealer.

When is gap insurance worth it?

Gap insurance is an optional auto insurance coverage that helps pay your car loan if your car is lost or stolen and you owe more than the vehicle is worth. It is worth considering if you are financing or leasing your car, and especially if you have a small down payment, a long finance period, or a vehicle that depreciates quickly.

If you are not financing or leasing your car, there is no reason to purchase gap insurance. However, if you are financing or leasing, gap insurance can be a good idea, depending on how much you drive and how quickly your car depreciates.

Cars can depreciate rapidly, and if you don't make a large down payment, the amount you owe can quickly exceed your car's value. Gap insurance is relatively low-cost coverage that can provide added financial security and prevent you from paying out of pocket. It is typically offered at a dealership when financing a new vehicle, but most banks, credit unions, and auto insurance companies also offer supplemental gap coverage.

When deciding if gap insurance is worth it, consider the following:

• The cost of gap insurance, which is usually inexpensive but can vary depending on the make and model of the vehicle, the rate of depreciation, your age, and your vehicle claims history. It also varies by state, with an average cost of $60 a year for coverage through an auto insurance provider.
• The coverage options available to you, such as new car replacement coverage and better car replacement coverage, which are offered by some auto insurance companies.
• The providers available to you, including major car insurance companies, dealerships, and auto lenders. It's important to note that insurance companies only sell gap coverage as an add-on to an existing policy, so you need to stick with the same provider.

In general, most new car buyers benefit from gap coverage while the vehicle is less than three model years old. Gap insurance can provide peace of mind and protect you from potentially having to pay the difference between your car's value and the amount you owe if something happens.

When is gap insurance not worth it?

Gap insurance is not worth it in the following scenarios:

• If you are not financing or leasing your car, gap insurance is unnecessary. Gap insurance is intended for those who have financed or leased a vehicle and are at risk of their car being worth less than the amount they owe on it.
• If you made a large down payment on your car, you may not need gap insurance. A substantial down payment reduces the risk of your car being worth less than the amount owed on it.
• If you are paying off your car loan in less than five years, gap insurance may not be worth it. The shorter loan period means your car is less likely to depreciate to a value below the amount owed.
• If your vehicle holds its value better than most, gap insurance may not be necessary. This is because the car is less likely to depreciate to a value below the amount you owe.
• If you have comprehensive auto insurance, gap insurance may be redundant. Comprehensive auto insurance covers unexpected events such as vandalism and floods, paying out the actual cash value of the car. However, gap insurance may still be useful to cover the difference between the payout and the loan amount.
• If your car is more than three years old, you may not be eligible for gap insurance, as it is typically only available for new vehicles.

It is important to note that the decision to purchase gap insurance depends on individual circumstances, and it is recommended to consult with an insurance provider or financial advisor to determine if gap insurance is suitable for your specific situation.

How does gap insurance work?

Guaranteed Asset Protection (GAP) insurance is an optional form of coverage that can be added to an auto insurance policy when adding a new vehicle. It is intended to cover the difference between the amount owed on an auto loan and the amount the insurance company pays out if the car is stolen or deemed a total loss.

For example, if you owe $30,000 on your auto loan but your vehicle has depreciated to a value of $26,000, your insurance company will likely pay out the latter amount (minus your deductible). With GAP insurance, the additional $4,000 you owe on the loan would be covered.

GAP insurance is not required by law or by any insurer, but it may be required by some leasing companies. It is also different from new car replacement coverage, which helps you purchase a brand new vehicle of the same make and model, or may even pay more if a newer model is available.

To qualify for GAP insurance, you must have comprehensive and collision coverage on your policy. It is important to compare prices and coverage before purchasing GAP insurance, as the price can vary greatly. You can buy GAP insurance from your auto insurer, or it may be offered to you by a dealer when purchasing or leasing a car. If you choose to finance a GAP policy into your loan, it will add to your total loan amount, which will increase the total interest paid over time.

How much does gap insurance cost?

The cost of gap insurance depends on the provider and the vehicle being covered. It is important to note that the cost of gap insurance doesn't vary much by state. Dealerships and lenders charge higher prices for gap insurance than car insurance companies.

If you purchase gap insurance from your regular auto insurer, the price is typically $20 per year. However, if you add gap insurance coverage to your auto loan, you'll usually pay a one-time flat rate instead of making regular payments. In this case, the average cost of gap insurance ranges from $500 to $700.

Some auto insurers offer gap insurance as a standalone, separate coverage option. When choosing this option, the average cost is a one-time fee of $200 to $300.

According to Progressive, you can include gap insurance on your existing car insurance policy for as low as $5 per month. On the other hand, Allstate's gap insurance covers up to $50,000 of the difference between a primary auto insurance settlement and the money owed on the vehicle loan.

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