GPP when about a car typically means Guaranteed Protection Plan. GPP is mostly known as coverage offered by auto alarm companies and it will refund your comprehensive deductible up to the named limit (usually $2,500) if your car is stolen while the alarm is installed and armed in your vehicle.
GPP pays your car insurance deductible if your car is stolen. The alarm company says their system should work and prevent a thief from taking your vehicle, but if it does not, they will pay your comprehensive deductible.
It could be however that someone is referencing Gap insurance which is much more common. Some may say GPP when speaking about Guaranteed Auto Protection Plans, though most call this Gap insurance.
Gap protection covers the difference between what your primary auto insurance company will pay if your vehicle is totaled or stolen and not recovered and the amount you owe to the bank, sales finance company, or lessor. Your auto must be a total loss or stolen and not recovered for the gap program to cover the “gap” between the balance owed on the auto and what your auto insurance pays for the loss.
It also can be labeled loan/lease gap coverage. You can purchase it easily with your policy for a very little premium.
For example, here’s how a “gap” occurs:
- You choose a car that costs $25,000 and drive it off the lot.
- After the down payment, you owe $24,000 in car payments over five years (0% interest loan = $400 car payments).
- You purchase physical damage insurance (comprehensive and collision) with a $500 deductible to protect you against damages and loss.
- You have an accident while you are still upside down on your loan or lease (“upside down” means owing more on a car than it’s worth) and your vehicle is totaled.
- The insurance company determines that the actual cash value of the car is only $22,000, but at the time of the loss you still owe $23,500.
- Gap insurance should pay the difference plus your deductible totaling $2,000. (Not all GAP policies pay the deductible)
Here are the line items:
- Loan payoff at the time of accident: $23,500
- Vehicle’s actual value at the time of accident: $22,000
- Your deductible: $500
- Physical damage insurance company pays: $21,500 ($22,000 minus $500 deductible)
- Gap insurance pays the difference between what is owed and what the physical damage insurance company pays (plus your deductible): $2000
Typically, a new car is worth approximately 30% less in three months than when it was purchased. In the example above, if you owned the car for three days, had physical damage coverage and the car was totaled, you could owe 20% to 30% of the $24,000 ($4,800 to $7,200 out of your pocket), even though you purchased “full coverage.”
Car owners often assume that if their car is totaled, it will be replaced at the amount they paid or at least the amount they owe. This is not so. Many car insurance companies offer a gap option (loan/lease gap insurance) as an optional coverage with physical damage coverage. Typically, a stand-alone gap policy is sold by a car dealer. If your carrier doesn’t offer it, consider comparing quotes and switching car insurance companies.
— Michelle Megna contributed to this story.
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