Insurance companies are competing aggressively with car dealerships to sell guaranteed asset protection, or GAP, policies, which cover the difference between a vehicle's loan balance and its cash value if the vehicle is stolen or totaled.
When you offer customers a GAP policy, how do you respond if they say they have GAP through their auto insurer?
Dealer consultant Ron Reahard, president of Reahard & Associates of Soddy Daisy, Tenn., gives seven reasons to tell customers why they should buy GAP from the dealership:
1. No deductible. Under the auto insurer's GAP policy, consumers must pay a deductible when they file a claim. The dealership's GAP policy has no deductible.
2. No impact on insurance rates. The more claims consumers have against their auto insurance policies, the more the insurer raises their rates. Claims against dealership GAP policies do not affect auto insurance premiums.
3. No risk of cancellation. Auto insurers can cancel policies if consumers file one too many claims. Not true with claims against dealership GAP policies.
4. Freedom to switch insurers. If consumers buy from the dealership, they can switch auto insurers without losing GAP coverage. But if consumers want to maintain their insurer's GAP coverage, they must stick with that insurer over the term of the vehicle loan.
"In most states, GAP is only available when you take a loan on a new vehicle," Reahard says. "It's not available on the car you already own."
5. Upside-down trade-ins. Often, a dealership will roll the amount the customer still owes on a trade-in into the loan on a new vehicle. If the new vehicle is totaled or stolen, the dealership's GAP policy pays the difference between cash value of the vehicle and the balance of the loan — including the negative equity on the trade-in. But sometimes insurance companies don't cover the negative equity on the trade-in in GAP coverage, Reahard says.
6. Higher coverage limits. Check the insurer's coverage against the dealership's coverage. Often, the insurer caps coverage at a lower amount, Reahard says.
7. Replacement vehicle. If consumers get GAP coverage from the insurer and the vehicle is totaled, the insurance company is more likely to fix the vehicle than to total it.
Reahard gives this example: The vehicle is worth $26,000 and the customer owes $30,000 on it. An accident does $20,000 worth of damage. The insurance company can pay $20,000 to fix the car. But if the customer has GAP through the insurer and the insurer totals the car, it has to pay $30,000.
Says Reahard: "That's why even some insurance agents don't get GAP from their own company."
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