Guaranteed Asset Protection (GAP) Coverage
Guaranteed Asset Protection (GAP) protects borrowers when a vehicle is stolen, accidentally damaged beyond repair, or otherwise declared a total loss. The standard auto policy on it only covers the actual cash value of the vehicle, less the deductible. When this happens, the borrower is financially liable for any shortfall between the net insurance settlement and what is owed on their loan, the deficiency, which could be thousands of dollars on a vehicle that now needs to be replaced.
It is necessary to ensure borrowers understand that they are responsible for the financial gap between the actual cash value of their vehicle and the payoff amount of their loan in the event of a total loss. Guaranteed Asset Protection (GAP) coverage helps borrowers keep from getting caught “in the gap”.
HUB Financial Services enables you to offer a Guaranteed Asset Protection Coverage where*:
- We bridge the gap between the actual cash value of the vehicle and the outstanding loan amount in the event of a total loss.
- Our Guaranteed Asset Protection coverage that extends to auto insurance deductibles of up to $1,000.
- Protection remains effective for up to 84 months on loan terms up to 180 months.
- Borrowers are relieved from the obligation of paying off a loan for a vehicle they no longer possess.
- Personal credit ratings are safeguarded.
- Our solution offers unparalleled peace of mind at a minimal cost.
- Borrowers have the flexibility to choose and switch auto insurance providers as needed.
Additionally, lenders benefit significantly from our Guaranteed Asset Protection (GAP) Coverage Program. By reducing charge-offs and GAP exposure, more loans can be approved. Our efficient claims process ensures quick payment, mitigating negative borrower interactions due to deficiency loan balances. Furthermore, we foster customer loyalty by offering up to $2,500 toward the purchase of a replacement vehicle.* Questions? Reach out any time:
What Is Guaranteed Asset Protection (GAP) Coverage?
GAP covers the disparity between a vehicle’s value and the outstanding loan balance in the event of a total loss, safeguarding both the borrower and the financial institution.
Benefits of GAP Coverage for Financial Institutions:
- Coverage for Total Losses: In the event of a total loss to the financed vehicle, gap waiver insurance steps in to cover the difference between the remaining loan balance and the actual cash value settlement provided by the auto insurer.
- Versatile Coverage: Guaranteed Asset Protection (GAP) Coverage can apply to various loan types, including new and used vehicle loans, balloon loans, and leases.
- Critical for Low/No Down Payment Loans: Particularly crucial for loans with minimal or no down payments, where the vehicle’s value may be significantly lower than the loan balance.
- Suitable for Extended Loan Terms: Especially beneficial for loans with extended terms, as longer amortization periods increase the risk of gap exposure over time.
- Advantages for Financial Institutions: Beyond borrower protection, Guaranteed Asset Protection (GAP) Coverage benefits financial institutions by maintaining customer relationships, averting deficiency balance write-offs, generating fee income, and promoting the financing of replacement vehicles by borrowers.
- Flexible Offering: GAP can be presented as an optional purchase for individual borrowers or provided as a benefit across the entire loan portfolio.
With HUB Financial Services‘ GAP Program, you can confidently support your clients through vehicle loss scenarios, ensuring their financial security and satisfaction.
* Subject to terms, conditions, limitations and exclusions set forth in the GAP Waiver Addendum. Lender GAP program parameters may vary.
Is GAP coverage required by law?
No federal or state law requires GAP coverage on a loan. Some states regulate how it can be sold, priced, and cancelled, and a handful restrict bundling it into the loan amount without separate disclosure, so program terms should be checked against the borrower’s state before sale.
What happens to GAP coverage if a loan is paid off early or refinanced?
Most GAP programs include a pro-rata or short-rate refund for the unused portion of the term when a loan is paid off, refinanced, or the vehicle is sold before the original maturity date. The refund calculation, and whether it’s automatic or borrower-initiated, depends on whether the program is structured as a debt waiver or an insurance policy, so this should be confirmed at origination rather than assumed at cancellation.
Does GAP coverage pay the insurance deductible?
Some GAP programs include a deductible reimbursement benefit as an optional add-on, but base GAP coverage typically pays only the gap between the primary insurer’s settlement and the outstanding loan balance, not the deductible itself. Lenders that want deductible coverage included need to confirm it’s built into the specific program rather than assuming it’s standard.
How does GAP coverage differ from an extended vehicle warranty?
GAP coverage addresses a financial shortfall after a total loss, while an extended warranty covers the cost of mechanical repairs on a vehicle that hasn’t been totaled. The two are frequently sold together at origination but respond to entirely different events and don’t substitute for one another.
Which borrowers benefit most from GAP coverage?
Borrowers with high loan-to-value ratios at origination, low or no down payment, or long loan terms carry the most negative equity exposure early in the loan and stand to benefit most from GAP coverage. That exposure narrows as the loan amortizes and the depreciation gap closes, which is why GAP value is front-loaded toward the early years of a loan.
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