Avoid GAP insurance rip-offs

If you’re buying a car from a dealership, resist high-pressure tactics aimed at getting you to buy “GAP” insurance. What the finance manager doesn’t tell you is that auto dealers make a lot of profits from the sales of GAP, or “Guaranteed Asset Protection” policies.

Dealers hike up the price, and add it onto your loan, where it can cost you $1000 or more extra, over the life of the loan. Some charge double or triple what you would pay if you bought GAP separately from a reputable insurance company. Finance managers are usually paid an extra bonus based on how many GAP products they sell. So they have a personal financial incentive to pressure you.

The purpose of GAP is to cover you if your car is stolen or totaled before you pay off the loan. The “GAP” is between the amount of the loan and the worth of the car. If there’s a large difference, it’s a sign you’re paying too much for the car.

It’s better to get a less expensive car, or wait until you can pay more of a down-payment and get a shorter loan, or pay cash, instead of paying extra for GAP.

If you do decide you want GAP coverage, shop around and avoid buying it at the dealership. Why?

One major pitfall to buying GAP at dealerships: many dealers collect the GAP payment, but pocket it themselves, and fail to activate the policy. Some dealers have been arrested and prosecuted for this scam, but even then, their victims were not able to recover their losses.

As a result, consumers who paid for GAP, and believed they were protected, got a rude awakening when their car was stolen, or totaled. When they contacted the insurer that was supposed to pay their claim, they found out they weren’t covered. Suddenly they had no car, and still had to pay thousands extra for the difference between the amount of the loan and what they collected from their auto insurer.

Another problem with buying “GAP” from dealers — often, the policies they sell have loopholes that exclude coverage, in the fine print. So consumers end up paying extra for worthless GAP policies that leave them unprotected.

Bottom line: either don’t buy GAP, or get your own coverage directly from a reputable insurer. Many offer GAP polices, and it pays to shop around.

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