Gap Insurance: Is It Worth It For Georgians?

Guaranteed asset protection (GAP) insurance is a type of auto insurance coverage that is most commonly available for newer vehicles. In Georgia, GAP insurance works the same way as it does in the rest of the U.S. It covers 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 is particularly relevant if you are purchasing a brand-new vehicle that loses significant value once it leaves the dealership. GAP insurance is optional in Georgia and not required by law, but it can be a critical source of financial protection for anyone leasing or financing a new car.

When is gap insurance used?

Gap insurance is used when your vehicle is a total loss. This could be due to an accident, but it could also be the case if your car is stolen and not recovered or if your car is destroyed in a natural disaster, such as a tornado, flood or hurricane. If this happens and there is no chance that your car can be repaired, you should receive a payout from your insurance company for the car's actual cash value (ACV).

The problem arises from the fact that this ACV may be less than you owe on your car loan or lease. This is because your car loan or lease will generally be based on your vehicle's new retail price, but depreciation begins to happen almost immediately after you've purchased it. The car's depreciated value will probably be less than what you paid for it and may be less than you still owe on the loan.

Gap insurance covers the difference between what a vehicle is currently worth (which your standard insurance will pay) and the amount you actually owe on it.

What is gap insurance?

Gap insurance, or Guaranteed Asset Protection (GAP) insurance, is an optional form of financial protection that covers the difference between the depreciated value of your vehicle and the amount you owe on your auto loan in the event of an accident, theft, or natural disaster. This difference arises because standard auto insurance policies only cover the depreciated value of a car, whereas gap insurance covers the remaining loan amount.

When you buy a new car or truck, it starts to depreciate in value as soon as it leaves the car lot. Most cars lose 20% of their value within the first year. In the early years of a vehicle's ownership, it is possible that the amount of the loan may exceed the market value of the vehicle itself.

For example, if you purchase a new car for $30,000 and it is totaled in an accident six months later, the depreciated value of the car may be $22,000, but you still owe $25,000 on the loan. In this case, gap insurance would cover the $3,000 difference between the amount you owe and the car's value, minus any deductible.

Gap insurance is typically available for brand-new vehicles and those up to one model year old. It is often purchased in conjunction with a car loan and can be bought from a car dealer, lender, or auto insurer. It is worth noting that gap insurance does not cover rentals, towing, or repairs; it only covers the difference between your outstanding loan balance and your car's value at the time of the claim.

Is gap insurance worth it?

Gap insurance is an optional form of financial protection for your vehicle. It covers the difference between the depreciated value of your car and the amount you owe on your loan or lease if your vehicle is stolen or written off. This type of insurance is not a legal requirement in Georgia, but it may be mandatory according to the terms of your loan or lease agreement.

Whether or not gap insurance is worth it for you will depend on several factors.

Cost

The cost of gap insurance depends on the value of your car, the insurance company you choose, your location, and your age. In Georgia, the average gap insurance rate is $1,604 per year, but this can vary. For example, a 20-year-old driver in Georgia can expect to pay about $4,278 per year for gap insurance, while a 30-year-old driver would pay closer to $1,737 per year.

If you buy gap insurance from a dealership, it can cost hundreds of dollars a year. If you add gap coverage to a car insurance policy that already includes collision and comprehensive insurance, it typically increases your premium by around $40 to $60 per year.

Peace of Mind

Gap insurance can provide peace of mind in case something happens to your car. If your vehicle is stolen or written off, gap insurance ensures that you don't have to continue making payments on a car that is a total loss.

Vehicle Finance

If you have a lease or loan agreement, gap insurance may be required by your lender. It is generally beneficial to purchase gap insurance if you have a lease or loan agreement, especially if you have only paid 20% of your auto loan or if you have financed a car for more than five years.

Depreciation

Gap insurance is designed to cover the difference between the depreciated value of your car and the amount you owe. A new car can drop in value by about 20% in the first year of ownership and lose more than 10% of its value each year over the next four years. This means that the payout you would get for the value of the car is likely to be much less than what you owe, at least for the first few years.

Other Factors

Other factors that will determine if gap insurance is worth it for you include the coverage options, available providers, and whether you qualify. Gap insurance is only available for brand-new vehicles and those up to one model year old. It is also important to note that gap insurance does not cover rentals, towing, or vehicle repairs.

Is gap insurance required in Georgia?

Gap insurance, or guaranteed asset protection insurance, is not required by law in Georgia. However, certain lenders in the state may require customers to carry it if they take out a car loan or lease.

Georgia has laws mandating a minimum amount of car insurance coverage, but this relates to liability from car accidents and does not include gap coverage.

Gap insurance is designed to cover the difference between the depreciated value of a car and the amount still owed on a loan or lease in the event of a total loss. This could occur if the vehicle is stolen or destroyed by a fire or flood, for example.

While not a legal requirement, gap insurance can offer financial peace of mind to drivers, particularly those with a long loan term or a small down payment, whose vehicles may be at risk of depreciation to a value below the loan amount.

Where can I buy gap insurance in Georgia?

You can buy gap insurance from insurance companies, dealerships, and lenders such as banks and credit unions. Most major car insurance providers in Georgia offer gap insurance, although GEICO does not.

The cost of gap insurance varies, but in Georgia, it usually costs between $20 and $300 per year, or $1–$25 per month. The majority of plans cost less than $100 per year unless you have a history of claims or a poor driving record.

Yes, you can typically cancel your gap insurance if you feel it is no longer beneficial, for example, if you have paid off enough of your loan that you now owe less than the vehicle's value. Check with your provider for their cancellation requirements.

Where can you buy gap insurance in Georgia?

In Georgia, you can buy gap insurance from several insurance companies, car dealerships, and auto loan lenders. Some of the largest car insurers by market share in Georgia that offer gap insurance include:

• AAA: AAA offers 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 does not directly offer gap insurance, but it does offer loan/lease payoff coverage, which still kicks in toward a policyholder's loan or lease payoff.
• State Farm: State Farm does not offer traditional gap coverage, but it does offer a Payoff Protector coverage option, which is essentially gap protection for those with a car loan from a State Farm bank.

Many dealerships also offer gap coverage in Georgia, including Toyota dealers and Cobb County Toyota. When shopping around for cars, it is worth asking the dealer if gap insurance is available.

You can also buy gap insurance from a bank or other financial institution that offered you a loan to purchase your car.

Frequently asked questions