Car insurance protects your vehicle stateside from risks like accidents, theft, and weather-related damage. But if you’re shipping a vehicle overseas for deployment or PCS, you could face additional risks, like damage in transit. If you still owe money on the vehicle, an unexpected total loss during a PCS move could leave you making loan payments on a vehicle that’s no longer driveable. That’s where gap insurance comes into play.
What Is Gap Insurance?
Gap insurance is short for Guaranteed Asset Protection. It covers the difference between a vehicle's actual cash value (ACV) and the remaining balance on your auto loan if the car is declared a total loss. Standard auto insurance pays out the ACV at the time of the loss, which is almost always less than what you owe, especially in the early years of a loan when depreciation outpaces your payoff rate. Here’s an example of how gap insurance works: Let’s say you’re stationed in Korea, and your truck is totaled in a major flood. Your loan balance is $28,000, but your insurance company only gives you $22,000 for the vehicle. That leaves a difference of $6,000 that you would need to pay out of pocket to pay off the loan. Gap insurance covers that $6,000 shortfall. The most common place to purchase gap insurance is through your car insurance company. Typically, it adds just a few extra dollars to your monthly premium. You can also get gap insurance through many auto lenders and some car dealerships. Gap insurance is only available on vehicles with a full coverage insurance policy that includes both collision coverage and comprehensive coverage. But most lenders require drivers to carry full coverage until their loan is fully paid off, anyway.
