Deal Pack Blog
What is GAP Insurance?
For newcomers to the used car industry, there’s much to learn. When ironing out the details of sale, a common product that will be available for customers to purchase is GAP Insurance. For a lot of customers, the question will be “What exactly is GAP insurance?” For a lot of dealers, the question will be, “Why should I offer this.”
GAP is an acronym for Guaranteed Auto Protection, or Guaranteed Asset Protection (both are industry accepted). For the customer, GAP insurance covers the difference between the actual cash value (ACV) of the vehicle purchased and the total balance still owed on the financed amount. For example, let’s say that John Smith comes in and purchases a car for $10,000.00, calculating to monthly payments of $200.00 per month. One year after John’s purchase, he is in an automobile accident, and his vehicle is totaled. The customer’s collision insurance company will determine the ACV of the vehicle, post-accident. Let’s say that the insurance company determines that the vehicle is worth $6,500.00. They will give the customer this amount to pay towards their loan. Up to the point of the accident, the customer has made total payments against the loan resulting in $2,400.00. After applying the insurance check against the amount of the loan, plus payments already made, the customer has paid a total $8,900.00 towards the loan amount of $10,000.00. If the customer purchased GAP insurance, the GAP insurance company would pay the difference of the loan and amount paid. Thus, in our example, the GAP insurance company would cover the $1,100.00 remaining on the loan.
GAP insurance is especially beneficial for customers deciding to lease vs. loan. Scheduled payments for leases are most time significantly lower , in the case of an accident, the total amount of money that has already been contributed to the vehicle will be less than a loan, sometimes drastically.
For dealerships, GAP insurance can also bring profit. In most cases, a GAP insurance contract will be sold at a price, with the dealership retaining a percentage of the total as profit. This means that GAP insurance is not only beneficial to customers; it can also be a profit driver in itself.
With all the intricacies of car sales and loan detailing, who can keep all the details straight and how will you work on adding in the details of each customer’s Gap insurance? If you are a current Deal Pack client have no fear. Deal Pack has all the functionality to handle the inclusion of GAP insurance in your deals, including detailed reports that show the amortization of the GAP insurance of your entire portfolio! Want to explore GAP inclusion with your current Deal Pack software or initiate a conversation about how switching to Deal Pack may be beneficial to your dealership? Call in and speak to a Deal Pack Support Specialist today at 800-526-832.