Even with full-coverage insurance on your BMW, you still might be on the hook for some hefty out-of-pocket costs in the event of an accident or other damaging incident if you elected not to protect yourself with Guaranteed Asset Protection (GAP) insurance.
If your car is totaled or stolen, do you have the funds to pay the difference between the vehicle’s market value and the remaining amount you owe on your loan? Read on to find out more about BMW GAP insurance and how it can benefit you.
What Is GAP Insurance?
Sometimes, the cost of replacing your car exceeds the actual cash value that most insurance companies pay in the event of an incident. Once insurers determine the actual cash value after an event, you may owe more than what your insurance policy covers. Guaranteed Asset Protection, or GAP insurance, is a policy designed to protect you from financial loss if the costs of damages exceed what your insurer pays for your BMW.
GAP insurance is designed as an extra policy to cover any overlapping payments that exceed your normal insurance coverage. Guaranteed asset protection eliminates the financial burden of unpaid debts that regular car insurance won’t cover.
If your vehicle gets totaled, gap insurance covers additional costs beyond that of a regular policy after one of the following events:
- Vehicle theft
- Fire damage
- Damage from natural disasters like hurricanes, floods, and tornados
For example, imagine you purchased a vehicle for $36,000 but totaled the vehicle. After the accident, your car insurer calculated the actual cash value of your BMW as $22,000. However, you still owe $28,000 on your vehicle because you only purchased it two years prior to the crash. This means you would still owe $6,000 out of pocket even after insurance paid for your accident.
When Do You Need GAP Insurance?
You Make a Small Down Payment
Making a down payment can help offset the cost of a loan, but sometimes you just don’t have the budget to allow for a large lump sum. When you can only put down a small amount of cash towards your purchase or lease, it’s a good idea to use GAP insurance as a financial backup for your BMW loan.
If you’ve rolled outstanding debt from your last vehicle into your new loan, you likely have negative equity (or you’re “upside down” on the loan), so GAP insurance can protect you from going further into debt. Buying a GAP policy gives you the peace of mind to know that you won’t be in a financial hole again because of an accident or theft.
You Purchase a Vehicle With a High Depreciation Rate
Purchasing a vehicle with a high depreciation rate poses a financial risk if you only use the car for a short period of time. While you can’t predict if you’ll be in an accident or have your new BMW stolen, you can insure it for these events using GAP insurance, offsetting some of the risks associated with depreciation.
You Finance a Vehicle Through Extended Terms
Purchasing a lease or securing a loan for an extended period typically means you owe more than the car is worth for a longer amount of time. Although your monthly car payment is lower, the financial risks can increase, including owing much more than the actual cash value of your BMW after an incident. GAP insurance helps mitigate the financial risk associated with extended payment options.
You Cover More Miles Than the Average Driver
Whether you love cruising down the open road or you commute for a job, GAP insurance helps protect you from the unexpected. You never know what you might encounter from other drivers or road conditions as you traverse the miles. Kelley Blue Book cites that the average American driver logs just under 15,000 miles a year. If your average miles exceed this annually, consider BMW GAP insurance for extra protection.
Benefits of GAP Insurance
Compared to what you get in return in the event your car gets totaled, buying GAP insurance for your BMW is a cost-effective choice if you own the vehicle. Most policies cost as little as $20 per year depending on your insurer or auto dealer according to WalletHub.
BMW GAP insurance offers you fiscal security by covering costs beyond traditional insurance policies when the funds to replace your vehicle don’t match what you owe.
In some states, GAP insurance pays for your insurance deductible. This means you won’t have to pay more out of pocket because the GAP policy covers the additional funds.
A policy for GAP insurance lasts for the same duration as your vehicle loan unless you decide to end the coverage sooner.
Lower Depreciation Risk
BMW GAP insurance offers protection from new vehicle depreciation if an incident occurs shortly after you lease or buy a new vehicle.
Tips for Purchasing BMW GAP Insurance
- Budget for the gap. Since gap insurance covers a lot for a nominal fee, consider adding this to your budget as you shop for a new BMW. Both dealerships and insurance companies offer this type of coverage.
- Shop before you buy. Adding gap insurance for your BMW may cost less through your auto insurer than it does if you purchase a policy from the dealership. Not only will the dealership try to make a little profit on your policy, but it will be rolled into the loan, which means you will be paying interest on it. Check prices with your insurance company before buying GAP insurance through the dealership.
- Consider your loan amount. If the total value you owe on the vehicle is less than the market value, you no longer need gap insurance as part of your auto insurance coverage. If you purchased the coverage through an insurer, you may be able to get a refund for any annual or monthly payments you’ve made.
- Own or loan first. GAP insurance is typically only available if you are the original leasee or owner of the vehicle. If you’re buying preowned, look for other comprehensive coverage.
Purchasing a GAP insurance policy for your BMW can help you avoid financial burdens and offset some of the financial risks of leasing or buying a vehicle. The value of this coverage, which typically costs a nominal fee, makes it worth considering as you shop for a new BMW.
At FIXD, our mission is to make car ownership as simple, easy, and affordable as possible. Our research team utilizes the latest automotive data and insights to create tools and resources that help drivers get peace of mind and save money over the life of their car.