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When your car is destroyed in an accident or stolen, it’s not the time to find out you may actually be liable for hundreds or even thousands of dollars. However, since auto insurance typically covers only a vehicle’s depreciated value–which may be considerably less than your loan balance– that’s exactly what can happen.

The need to cover this “gap” gave rise to guaranteed auto protection (GAP) programs about 15 years ago. These programs, which pay the remaining loan balance after the auto insurance claim is paid, quickly grew in popularity as credit unions discovered that offering GAP addenda to loans decreased their financial risk, enhanced goodwill and member retention, and provided a valuable noninterest income opportunity.

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