In a world where a vehicle’s value drops by 20 to 30% during the first 12 months of ownership, protecting yourself with Guaranteed Auto Protection or “GAP” insurance may be a smart purchase as you prepare to drive off the car lot.

Many assume that our auto insurance will cover damages if a vehicle is stolen or wrecked, but this isn’t always the case. GAP provides an additional level of protection available for those who want it or who are required to have it as part of their vehicle lease or purchase contract.

GAP coverage picks up where an auto insurance policy leaves off and is especially useful when your outstanding auto loan balance exceeds the vehicle’s total depreciated value.

The math is simple:

• You buy a new car for $30,000.

• After putting money down, you owe $25,000.

• Your car is totaled and your collision coverage payout equals the car’s depreciated value.

• If that value is $23,000, you would have to come up with the remaining $2,000 to satisfy your auto loan.

In the same scenario, gap insurance coverage, which typically costs a few dollars a month or is charged as a flat fee by the lender, will cover the additional amount owed.

Credit Union member Dominick S. was certainly glad he had signed up for GAP insurance. Dominick totaled his more than $28,000 car just one month after opening his loan. The insurance company only paid around $22,800, leaving Dominick on the hook for more than $5,000. But because he had purchased GAP insurance at the orgination of his loan the remaining balance was completely covered.

Insurers will often offer gap as a part of your policy, so be sure to ask about it. Some even require the extra coverage. Be sure to ask about the qualifications and coverage options before taking out a GAP policy on your next car.